The NVT is the basic starting point for telnet connections. Minimally, each player in the process must be able to meet the basic guidelines set out by the NVT standard. This is what your telnet client software does, regardless of what platform you're using. Your telnet software allows you to meet these minimum NVT guidelines. Some telnet servers and clients want to offer or take advantage of services above and beyond what the normal NVT offers.
Options are things like character sets, display emulation modes, extended feature sets, etc.
In other words, each side reveals what it does and does not do, and also what it will and won't do at the request of the other side. By the time the connection is negotiated, both sides are in agreement about what services are and are not available within the telnet session. The session can then go forward, with both sides knowing exactly what to expect. You are not locked into what was agreed upon when the session was started, because it is possible to renegotiate your options while your session is in progress. In UNIX, both the telnet server and the telnet client are included with the basic UNIX distribution.