Gift card microsoft balance

Microsoft gift cards and Xbox gift cards are essentially the same thing. They both add funds to your Microsoft account balance. So if the game allows you to use your Microsoft account balance on the purchase, then either gift card will work.

Gift cards cannot be used to purchase gift cards. The Microsoft account balance is essentially the same as a gift card since funds typically come from Xbox gift cards.

No. Since funds in a Microsoft account balance is from gift cards, they cannot be used to purchase a gift card.

Is this a card for Microsoft credit added to his Microsoft balance or a gift card for the game itself?

You can't buy a gift card with funds in your Microsoft account balance. That would be essentially buying a gift card with a gift card. You would need to buy a game or other content in the store and use your account balance as the payment method.