xterm supports some graphics through Sixel rendering. Never saw a real use of this. On X11, some text browsers, like w3m render images on xterm by painting directly in the xterm window.
This is a major annoyance for me, a former OS X user (stopped using it turned to shit in all other regards). I have had to work really hard to get text to render well in Linux terminal emulators -- iTerm2 had good typography out or the box, modulo the default typeface.
http://41j.com/hterm/