I don't know what species he is, but he is a 48 year old who was born in Cosmo Canyon. He is very intelligent and has a higher intellect than most humans. In the beginning of the game, Red XIII is being held at Shinra HQ for scientific research and study.
I keep Red XIII in my party almost all the time since he is good at both physical and Magical attacks. I keep him in the middle because of this. I put most of my summon spells on him, and I also put my revive Materia on him. His Limit Breaks are very useful, and his Level Four Limit Break, Cosmo Memory, is both powerful and cool looking. This can be obtained by opening the safe in Nibelheim. Red XIII's Ultimate Weapon, Limited Moon, can be obtained by visiting Bugenhagen towards the end of the game. If you have both of these, he can be a very good front row fighter. If not, then keep him in the back and give him good Materias. He is very versitile, so you can do almost anything you want with him.