There's no way to add apps, but it still functions as a phone and communication device. Clearly not why someone would buy an iPhone, but it's not the same as being completely unable to progress with the system because one can't login.

App Store and iCloud accounts are separate.

This is an uncelebrated (accidental) security feature. One of the most secure "burner" devices there are, is an iPhone or iPad with no iCloud configuration.

Good for semi-anonymous browsing for instance, also because fingerprinting of the browser looks the same as a bunch of other iOS devices.