Xiaoyu is a character that likes to dance around their opponent's feet with a lot of stance transitions and quick pokes in order to crush her opponent's highs (and dreams) and to also evade their mids with her enhanced side step in BT or her infamous AOP (d+1+2). She's a pro at making her opponents second-guess their inputs at range zero and one. In Heat mode she gains, firstly additional attacks she can use for generating plus frames, mixups and damage, and secondly she skips the first step in her 50/50 stance called Hypnotist (db+1+2) which makes the stance options out of it even deadlier.
Xiaoyu is one of the more difficult characters because of her reliancy on stance transitions and specific matchup knowledge what she can evade and interrupt where other characters cannot, thus making her a specialist character. Yet, her combo game isn't really difficult and therefore quite straightforward. She's a great fit for players who like controversial characters 'breaking' the game mechanics by flying around their opponents, making them second guess themselves by evading a heap of their moves. She's also a strong 50/50 monster in Heat (particularly at the wall).
Also, it's worth pointing out that Xiaoyu's best at stealing rounds when her opponent gets impatient and annoyed so she can evade their moves and retaliate in a way no other character can. Conversely, that means that she's quite in distress opening up defensive players who are patient and like to backdash since her T-Rex arms and legs have a difficult time reaching the opponent. But that doesn't stay true when she has her opponent's back to the wall and is also in heat mode. That's the place where she really shines, making her opponent tremble in fear thanks to the sheer amount of plus frames, mix-ups and (chip) damage.