Combat in Xenoblade Chronicles is at once both intuitive and strange, thanks to the system of auto-attacks and Arts. Those of you who have played MMORPGs will be very familiar with the way combat works, so you can probably skim this segment.
Combat is free-roaming in Xenoblade Chronicles, and you are allowed, for the most part, to wander wherever you want to around the environment. This does not mean that doing so is a good idea- most characters are melee combatants, and cannot hit anything that is not next to them. Whenever you are fighting, you will have a ‘lock on’ to a particular opponent- this is usually the enemy that either started the fight or that you started the fight by attacking. This target is the one you will attack both with your auto-attacks and your Arts, although some Arts affect an area and thus injure other enemies that are involved in the fight.
Because of this you do need to be careful- many enemies are passive until attacked, which means that if your fight wanders past them and you use an area-effect Art at the wrong time, you can draw more opponents into the fight than you can safely handle.
While you are in combat, you will always be facing the opponent you are locked on to, and the camera will always point at them. This makes a lot of things easier, but can make tracking nearby monsters and other enemies a bit difficult. Keep aware of where things are when they leave or enter your field of view- adding just one enemy to a fight can take it from simple to impossible, especially at low levels of play.
This is the simplest level of combat, really- move around into positions where you can hit your enemy. The complication comes in when you start using Arts. Arts are accessed by the row of icons along the bottom of the screen, which you navigate with the right d-pad (or right joystick if you’re using a Classic Controller) to select your Arts. Arts are special techniques that a character has, and they come in two varieties- the regular Art and the Talent Art. Regular Arts are the simpler of the two- each character has a variety of them, and they all have set cooldown periods where they cannot be used. Talent Arts are different, though- each character has only one Talent Art, and that Talent Art charges (and recharges) only when the character is using their auto-attacks- so a character who is not hitting something is not going to regain their Talent Art.
Fortunately, the game indicates for you when you can use Arts and when they aren’t going to do anything- in fact, you can’t use an Art at all if your target isn’t in reach or is otherwise invalid.