I'm still new to the world of music technology so I may not be the best person to explain this, but basically, MIDI and audio are not file types, rather, they are two different ways of recording music. Digital audio typically involves making a live recording of a sound using a microphone and transferring it to a CD or computer file, whereas MIDI is more like a set of instructions you input using a keyboard or piano roll telling your software what to play when. It is only after producing the recording that you choose what file type you want, whether it be a .mp3, .wav, or something else.
You're right in the fact that MIDI recordings don't allow for much variety in terms of variety and articulation options for instruments, but the benefit to using them is that they use much less data than audio recordings, so they are often favored over them when it comes to projects like video games, so that more data can be used for the content of the game rather than just the background music that not everyone even cares much about in the first place (although the Pokémon community is a bit different in that regard).
Again, I'm no expert, but hopefully that clears a few things up.