XTerm implements an old bitmap protocol invented in the 80s. The author of Kitty rightly points out that it’s inefficient, limited to one color per column of 6 pixels (if you want a second color you can go back to the start of the line and print over). Rather than implement support for the Sixel protocol, the author of Kitty choose to implement something modern. It’s actually rather nice; the program can print out a filename for Kitty to load, or even point to a shared memory buffer. Those are very efficient options, provided your program is running on your local machine.

Meanwhile Gnuplot supports a wide variety of “terminals”, many of which are just outputs to files of various types, some of which are GUIs, others of which are for actual terminals, like “dumb” (ordinary printable characters), “tek40” and “xterm” which use a protocol invented for Tektronix terminals, “sixelgd” which uses the sixel protocol from the VT340, half a dozen types of printers, etc.

But nobody has added one for the Kitty protocol, so it doesn’t work there. The downsides of inventing something new I suppose; the existing software doesn’t automatically support it, someone has to go around and add that support.