Clearly we need a UK to US translation guide!
An ISA is a tax-free savings account. You contribute to it from your net, post-tax pay. But once inside the ISA, money grows entirely tax free, and can be withdrawn entirely tax free, at any age.
You're totally correct, this is incredibly generous. They're intended to encourage saving.
There's a limit on how much you're allowed to contribute to an ISA per year, which is use-it-or-lose-it. The limit has grown immensely over the last few years, it's now a rather substantial £20k per person per year. So it's great for building up savings from your salary. (But you couldn't e.g. stuff an enormous inheritance into an ISA all at once, you'd have to feed it in over the years).
There are two different types of ISA accounts you can open, a cash ISA which will return a certain interest rate like a normal bank savings account would, and a 'stocks and shares' ISA, in which you can buy stocks/shares/funds.
I'm not sure what you mean about ISAs paying 'so much more interest than regular savings account'. Right now, cash interest rates are low, and cash ISAs are not generally beating high-interest bank accounts. Of course if you invest in the market in a S&S ISA you are likely to beat cash.
Does that all make sense?
I haven't covered LISAs ('lifetime ISAs') because, because. They're a newer offering and work a bit differently. They're intended specifically to help people save for their first home or for retirement. You can contribute up to £4k/year into a LISA, and the government will 'top it up' by 25%, so for every £4k you put into a LISA, the government will also contribute another £1k. If you access the money for anything other than a first-time house purchase or retirement, you lose the top-up bonus. Note that if you put £4k into an ISA, that counts as part of your £20k/year ISA allowance (so you'd only have £16k left to play with).
I've never owned a car so I'll let others take that - maybe easier to post a separate thread?