network transparency ?

> if Xwayland is X11 on the top and talks to Wayland to access the hardware, what is Wayback doing?

Ok. First X11. On X, you have a display server that displays the window contents of X11 applications. One of those applications will act as the "window manager". I assume we all know what an X11 window manager does. The important thing is that, on an X server, the window manager is just one of the applications. You can run an X server without a window manager if you want. All our X11 window managers run on the same X server (typically Xorg). The Xorg server talks to the hardware and also to the applications (via the X11 protocol).

Now to Wayland. Wayland is a protocol just like X11 is a protocol. And, like with X11, it is what applications use to communicate with the display server. The difference is that, in Wayland, there is not one display server like with Xorg. There is no universal Wayland server. Instead, we have what are called "compositors". A compositor is like a display server and window manager all wrapped up in one. When we say that we are running "on Wayland" we really mean that we are running on a Wayland compositor that uses the Wayland protocol. This is why people constantly say "Wayland is just a protocol" because there is no "Wayland" to run on. There are only Wayland compositors that use the Wayland protocol. It is the Wayland compositors that talk to the hardware. Examples are hyprland, niri, kwin (KDE), and mutter (GNOME).

So, the answer to your question is that Wayback is a Wayland compositor and Xwayland is a Wayland application. Wayback is a super-specialized Wayland compositor designed only to host Xwayland and not other Wayland applications. The only "Wayland" app running on Wayback will be Xwayland in rootful mode which itself provides an X server that X11 applications can run on top of.

It is Hardware > Wayback (Wayland compositor) > Xwayland > X11 applications

You can actually use any Wayland compositor to run Xwayland as above. The difference is that most Wayland compositors are designed to run multiple Wayland applications and to manage those applications as individual windows. As such, Xwayland is usually used in rootless mode where every X11 app gets its own Wayland window. Wayback is a Wayland compositor designed to run only Xwayland in kiosk mode.

Ok, the above needs a tweak. Wayback is more than just a compositor. Replace everything I said above with wayback-compositor (specifically the compositor) which is just one component of the project. There are also other parts to Wackback. For example, wayback-session sets up things like environment variables and tries to execute .xinitrc amongst other things. It runs wayback-compositor. This makes the Wayback / Xwayland combination function more like a true drop-in replacement for Xorg.