Aah, I can't speak to the Xbox experience at all, I've only used the Java edition on PC where they give you a jar for the server and you run it somewhere
Oh no, this is for the Java PC version, hence the "WTF?" at the option being buried in XBox settings (in the MS account management settings screens in a web browser, not while trying to do this on an XBox, which device we don't even own, all this was taking place on desktop and laptop computers)
I believe it only happens when the age on an account is under 18. Also requires a Microsoft family account with parental controls to enable chat for <13. Some restrictions of this type can be modded out of the game, though IIRC the restriction on multiplayer is not possible to bypass due to servers checking each login with Mojang servers.
