when you execute this command the terminal...
The terminal or "shell" is itself a program. There are many different shell programs: sh, bash, zsh, cmd, PowerShell, etc., so the answer would in general depend on what shell you are interested in...
The shell performs two main function: (1) it launches other programs; (2) it interprets built-in shell reserved words.
For example, in bash: "alias" and "echo" are built-in reserved words that are interpreted by the shell, but "netstat" and "ls" are separate programs that are launched by the shell.
The example from the comments:
echo -n '6c73202d6c' | xxd -r -p | bash
Uses three programs (echo, xxd, and bash) commonly found on Linux platforms to create a hex string, interpret the hex string as characters, and pipe the command ("ls -l") to bash for execution.
This is one way to "execute hex," but it does rely on the fact that the platform already has programs to produce and parse hex.
I just tried running Cyberchef and turning my command, which is just ls -la into hex and this command doesn't execute even with \x syntax.
This will not work in general.
If the shell doesn't recognize the command as a program that exists in the PATH or as a built-in command it will simple respond with a warning/error message like "command not found"