Etsy doesn't support Markdown - at all
Pasting "**bold**" or "# Heading" leaves the asterisks and hashes visible to the buyer. The formatter strips Markdown syntax, converts # lines into UPPERCASE pseudo-headings, and turns - / * bullets into the • character that Etsy actually displays.
Line breaks behave literally - and that's the point
Etsy renders every newline you submit. Two blank lines mean two blank lines on the listing. The formatter normalizes runs of blank lines to a maximum of one (so accidental triple-spacing in your draft doesn't leak through) and trims trailing whitespace per line.
The first 160 characters do most of the work
Google uses the first ~160 chars as the meta-snippet on search results, and Etsy mobile truncates the description preview at roughly the same point. Front-load the value proposition; save your shop story for the bottom.
Smart quotes and emoji can break copy-paste
Curly "smart quotes" sometimes survive an Etsy paste and sometimes don't - same for ♥ ✨ 🎉. The toggles let you normalize to straight ASCII quotes and strip emoji on output, so what you paste into Etsy is what your buyer sees.