This is slightly complicated to answer!
Standard Mastodon doesn’t let users create rich text posts, but it does display rich text posts if they are created on other Fediverse platforms.
There are also non-standard versions of Mastodon which do let you create rich text posts, such as the fork Glitch Mastodon ⧉ (however, not every Glitch server has rich text posting active, you would need to ask a particular Glitch server’s admin if they have it switched on).
There are also standard Mastodon servers that have been manually customised by their admins to allow rich text or other unusual formats such as LaTeX ⧉ (an example of a server with LaTeX is mathstodon.xyz ⧉).
What kind of rich text can standard Mastodon display?
Standard Mastodon will display the following kinds of post formatting: bold, italics, strikethrough, ordered and unordered lists, blockquotes, inline code, fenced code blocks, headers. Headers are displayed as bold text in a separate paragraph.
What kinds of rich text can standard Mastodon create?
None. As mentioned above there is currently no support for posting with rich text on standard Mastodon.
What kinds of rich text can Glitch Mastodon create?
The unofficial fork Glitch Mastodon ⧉ can display and create headers, bold, italics, strikethrough, blockquotes, inline code, code blocks, subscript, superscript and lists. These can be written in Markdown or HTML, and there are more details of how it works here ⧉.
Standard Mastodon supports showing rich text, so why doesn’t it support creating rich text?
It’s surprisingly difficult to locate the answer, as the topic has been discussed in various different threads on the official Mastodon Github, framed in slightly different ways so that the discussions aren’t always comparable. It seems to have just never been a priority for the developers, it wasn’t seen as crucial.
If you want standard Mastodon to support creating posts with text formatting and you’re comfortable using Github, the best way to let the developers know is probably to give a thumbs up in in this open issue ⧉.
What is rich text? What is Markdown?
Rich text means stuff like underlining, bold text, italics, strikethroughs etc, where ordinary text has additional formatting added to it. There is a popular open standard for creating and editing rich text called Markdown ⧉, but other standards exist too.