It functions as both. It's got disgusting, archaic optimizations to work efficiently on VT100 terminals, but it can also run in X / Wayland with anti-aliasing and font shaping and images and whatnot. I like it because while I generally use the GTK version, I can load the same configs on a remote machine and use it through SSH.

If you run emacs -nw it will start in "no window" mode, for use in a terminal.