GNOME Terminal starts the default shell (command line interpreter) for the user. Advanced UNIX shells can significantly extend the capabilities of the usual command line prompt. For example, bash shell (which is the default shell for most Linux distributions) provides command completion (try entering beginning of a command or file name and press Tab key), history buffer (you can recall previously entered commands by pressing Up arrow key), and much more. For complete documentation, see the manual pages for appropriate shells.
GNOME Terminal provides scrollbar so that you can scroll back and see previous commands and output; this is especially convenient when a command output does not fit in one screen. By default, the scrollbar is placed on the right side of the terminal window. You can change its location or remove the scrollbar altogether using the Preferences dialog.
You can also use keyboard for scrolling: Shift-PgUp scrolls up, Shift-PgDown — down.
The term is designed to emulate the xterm program provided by the X Consortium. The xterm program in turn is an almost-complete emulation of the DEC VT102 terminal.
The GNOME terminal program supports the same extensions to the VT102 that the xterm program provides, through special escape sequences. The xterm program is an evolving program. Recent changes to xterm have been been incorporated into GNOME Terminal. This includes emulation of the newer DEC VT220 escape sequences.
In simpler terms, this means that GNOME terminal understands all the commands (escape sequences) used by VT102/VT220 terminals for things like positioning of the cursor on screen. Therefore, you can run in GNOME Terminal any application that is designed to work inside VT102/VT220/xterm terminals and all the controls (such as arrows, PageUp/PageDown keys, Tab key, etc) will work as expected.