The question is asking if the set of all finite sequences of the letters x y z is countable. For instance elements such as xyzxyy, yzzxxyyyy, xxxyzyx exist in the set.
Would cantors Cantor's diagonal argument work here to prove that the set is uncountable? So far, I have only seen Cantor's diagonal argument used to proof that the set an infinite sequence is uncountable. Such as the infinite sequence of possible binary numbers. Does the fact that the set contains finite sequences of letters mean that it is actually countable? Or is it there to trick us?
I think this set is countable. Let $\{p_i\}_{i\in \mathbb{N}}$ be the sequence of prime numbers. Define a map $f$ from this set to natural numbers. Given a finite sequence $\{a_i\}_{i=0}^{n-1}$ where $a_i\in \{x, y, z\}$,
$$f(\{a_i\}_{i=0}^{n-1})=\prod_{i=0}^{n-1}p_i^{\sigma_i}$$
where $\sigma_i=0,1,2$ respectively when $a_i=x,y,z$.
By unique factorization, $f$ is injective so this set is countable.
Note that $f$ is well defined since we only look at finite sequences. It is exactly the finiteness that makes this construction possible. This method can be generalized to show Robert Shore's comment. If we consider the set of all sequences including the infinite ones, the set is uncountable by diagonal argument.