I saw this good looking device and it was so interesting that it functions almost satisfied all my conditions. but one thing I am confused about is this, is this arduino used to program a chip or its like a microprocessor where you connect all the devices you are trying to design to become a circuit to?

The latter

An Arduino Uno board is designed to be a convenient way to program and connect with the Atmega 328 microprocessor that is on the board.

In a sense it is both of the things mentioned in the Original Post.