All interesting questions and you made me curious, too! I already knew a bit about hybrid technology, but there are different implementations out there and I did a bit of reading on it. The general theory is that an internal combustion engine (ICE) is more efficient at higher revs, while an electric motor has all its torque available regardless of rpm. Since the electric motor is better at the low rpms, the car is accelerated from a stop using the electric motor and then the ICE takes over for cruising and also recharges the battery at that time.
Some hybrid cars do allow you to plug them in for a recharge, so they are called "Plug-in Hybrids." The XV Hybrid is not that type of hybrid, since it relies solely on internal sources to charge the battery. As stated before, the ICE charges the battery, but some energy is also recaptured during braking. When you hit the brake pedal, the electric motor remains linked to the wheels through the drive train. The wheels are now turning the motor, instead of the other way around. This allows it to act as a generator, which actually creates electricity instead of consuming it. In this state, and when there is a load on the generator(ie: charging the battery), it becomes harder to turn the shaft of the generator. Thus, it helps to slow the car down without relying solely on the conventional brakes while at the same time getting back some energy that would have been wasted in the form of heat when the standard brakes rub against the rotors/drums to slow down.
So by making electricity more efficiently using higher ICE revs and by recapturing spent energy while braking, the hybrid makes better use of the energy in the fuel that is burned.
I've read an article about the Prius batteries and they seem to last around 10 years. It could cost as little as $500 for a used battery or as much as $4100 according to someone in the comment section:
The 200,000-mile question: How does the Toyota Prius hold up?
If you initially paid $3000 more for the Prius and had to spend $3000 more for a new battery 10 years down the road, you'd still be ahead by $10000 if you saved $16000 in fuel costs (figuring 50% less fuel consumed at $4.00/gallon after 200000 miles). But, that's an example of a doubling in mpg, comparing your old 25 mpg car to a new 50 mpg Prius. There is a much smaller difference with the old XV vs the new hybrid XV, but there still may be some savings to be had both environmentally and monetarily for city drivers. It's worth it to mention that someone commented that they had never changed the brake pads on their Prius in 232000 miles due to regenerative braking, so that's quite a bit of savings right there.
Remember that when you improve the mpg you are decreasing your consumption of gasoline, which includes decreasing all the expense and resources needed to get that gas out of the ground. Unfortunately I don't have an answer if the environmental cost to manufacture the batteries is less than the environmental cost of just using a combustion engine with higher fuel consumption, but apparently you only have to manufacture a Prius battery once every 10 years. When the Prius came out it was getting double the mileage of many ICE powered cars out there, which seems like a pretty wide margin for claiming environmental gains. But, only a complete study of all the externalities would show this. I'm sure someone has tried to look at this somewhere.
As for some of the other differences between the XV and the XV Hybrid, they did some additional tweaking of the suspension and gave the car a more responsive steering ratio. The electric motor also gives the car some more pep when it works together with the ICE to assist in acceleration. Basically, the Hybrid XV is a performance improvement that happens to squeak out some better mileage numbers. That's pretty much how the Motor Trend review sums it up:
2014 Subaru XV Crosstrek Hybrid Prototype First Drive - Motor Trend
Time to head to the BBQ!
