Yes, it's the same XOR. It gets used inside most of the algorithms, or just to merge a stream cipher and the plaintext.
Everything is just bits, even text. The word "hello" is in ASCII
01101000 01100101 01101100 01101100 01101111. Just normal bits, grouped in 5 bytes. Now you can encrypt this string with a random string of 5 bytes, like an One-time pad. Let's say we got the randomly generated string
10001001 10000010 00001011 01001101 11101101 (generated with www.random.org). Now we XOR both strings, getting
11100001 11100111 01100111 00100001 10000010. If you never reuse or reveal the key, nobody can crack this cipher. (Well, I did reveal the key, so it's not secure anymore.)
Many block ciphers use XOR. Let's take AES: The Advanced Encryption Standard uses xor on single bytes (some other algorithms use blocks of 16 or 32 bits; there's no problem with sizes other than 8 bits). The round key will be XORed with the intermediate result and after that permuted and substituted. XOR also gets used in the key shedule.
IDEA also uses XOR as one of its three main functions: XOR, addition and multiplication.
XOR has (inter alia) these advantages when used for cryptography:
- Very fast computable, especially in hardware.
- Not making a difference between the right and left site. (Being commutative.)
- It doesn't matter how many and in which order you XOR values. (Being associative.)
- Easy to understand and analyse.
Of course, some of this "advantages" can be disadvantages, depending on the context. The fast speed makes it possible to use XOR often without huge performance drops. The security of Threefish, another block cipher, relies on the non-linearity of alternately using modulo addition and XOR. Despite of the use of 72 rounds (as the base of the hash function Skein) it's still quite fast.
XOR alone is not enough to create a secure block or stream cipher. You need other elements like additions, S-boxes or a random, equally long bit stream. This is because of the linearity of the XOR operation itself. Without non-linear elements, a cipher can easily be broken. See Why do block ciphers need a non-linear component (like an S-box)? for more details on why non-linearity is important.