Server Software or Plugin?

Is this server software or a plugin? I want to have forge plugins on my papermc server

When all else fails, read the instructions. Or in this case the SpongeDocs.
In answer to your queries; SpongeVanilla is server software; SpongeForge is a Forge mod. Neither are compatible with bukkit, nor any derivative thereof (such as paper).

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There have been several attempts to make the Bukkit API and Forge work together, probably the best-known being Cauldron. It’s neither an easy thing to do, nor conserve, and that was one of many motivations for the development of SpongeForge.

In that sense, yes, there are numerous things that Sponge can do that aren’t possible with other APIs at present. The SpongeAPI is sturdy enough now that we even manage to run Sponge plugins made for 1.10.2 on the 1.11 builds - that block pipe system in the OP is a recent user-made mod called LimeFun that we tried out as a random test.