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Xbox's biggest crisis right now isn't games. It's hardware. (Opinion - Jez Corden)
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They know it's a losing battle to try to build the same product as an entrenched competitor after they burned themselves with the Xbox One, which is why they much prefer you're a subscriber to Game Pass, with an Xbox or not.
They've got like 25-30 million subscribers, so it's quite popular. Probably half or a third as popular as Microsoft would like, but it's popular. I myself have plenty of friends who want to play more games than they can afford, and now they can afford them because of Game Pass. Especially the flash in the pan zeitgeist stuff like Exoprimal or Rainbow Six: Extraction that they can say they've played but will never touch again.
Quick resume. To be honest, what sets the PS5 apart from the Xbox hardware in a positive way? The SSD speeds that ended up not even mattering much for Ratchet & Clank, from what I hear of the PC port.
By contrast, I know tons of people who hate the PS5 controller, not the least of which for its short battery life and inability to swap batteries like you can for Xbox. As a fighting game player, I know competitive players who hate the d-pad, and Sony did everyone dirty by requiring the use of a PS5 controller only even though the entire scene has had controllers for a decade that would work just fine, and even work on the PS5 when running a "PS4 game" on a PS5. Xbox's controllers are backward and forward compatible. If Sony had some kind of reason for requiring the functionality of the new controller, sure, have at it, but they put this requirement in place for games that make no use of the new controller's features at all, which is a dick move.
I think they did exactly that, but as far as which console sells more units, it's still PlayStation, because they have a couple of games that, at least for a couple of years, you can only play on PlayStation. But I think Microsoft saw that they were never going to be able to compete with that directly, at least before their acquisition spree, so the Xbox is just a low-cost machine that gets you into Game Pass, long-term.
Is the Xbox controller being backwards/forwards compatible actually a feature? I thought that the only difference between them was the presence of a share button. Not to discount your point about it being bs that ps5 games require a new controller.
I guess the answer to your question about what hardware advantage the ps5 has it has to primarily be the controller. The new vibration and adaptive triggers are super engaging. I also personally prefer the way it feels to a ps4 one. Unfortunately I don't have an Xbox so I can't compare. Obviously that's a personal preference thing though, it's completely valid for you to dislike them.
That said, let's be honest, I got it for the exclusive games.
Is the PS5 controller limitation for playing single player games? With multiplayer games the PS4 controllers work just fine IIRC.
It's for playing a PS4 game vs playing a PS5 game. If you want to play the PS4 version of Street Fighter 6 on a PS5, you can use PS4 controllers. If you want to play the PS5 version of Street Fighter 6 on PS5, you must use PS5 controllers. Basically just arbitrarily forcing you to buy new controllers when the others would have worked fine.