> Now the questions is, is xsl:template name= ... 
> able to do something, which xsl:function cannot do?

Depends what you count as "able to do something". For example, a named
template can declare default values for parameters. Does that count?
> 
> Please consider the below example:
> 
...
> 
>  <xsl:function name="xx:dummy-func" as="node()+">
>    <dummy-content/>
>  </xsl:function>
> 
>  <xsl:template name="dummy-template">
>    <dummy-content/>
>  </xsl:template>
> 
> I am calling a named template, using xsl:call-template. The 
> output of this stylesheet is:
> 
> <?xml version="1.0" encoding="UTF-8"?>
> <result xmlns:xx="http://dummy-ns">
>   <dummy-content/>
> </result>
> 
> Can we do a similar thing using xsl:function? 

Yes, you can:

<xsl:template match="/">
  <result>
    <xsl:sequence select="xx:dummy-func()"/>   
  </result>
</xsl:template>

Michael Kay
http://www.saxonica.com/