There are many things the basic, barebones iOS/iPadOS Notes app cannot do.
The default iOS/iPadS Notes app is free and is of very limited features/functionalities.
You CAN use the iIS/iPadOS Mark-up feature to write ON a photo, but that is about it.
If you really want to get the most out of that Apple Pencil and need extra note-taking features, I recommend looking at other third party note taking apps.
Apple's free, default, iOS Notes app a a basic notes apps that Apple includes, more or less, as a example “showcase” app of what could be done when designing/coding a more fully featured note-taking app.
Apple's free Notes app is NOT a full featured notes app and has many useful features not available to it.
Apple has always treated their iOS Notes app in a way where the app is like only approx. 80% “there”.
To make the free iOS Notes app a relatively basic, simple notes app that anyone can, more or less, learn fairly easily, Apple's Notes has eschewed many useful features found in other more powerful and robust/feature-rich, third party note taking apps.
Also, to also emphasize how basic the free iOS Notes app is, Apple ONLY upgrades/updates this app once a year with a new iOS/iPadOS version introduction every September/October.
If you need more features from a notes/note taking app, I recommend you look to the Apple iOS App Store for more fully featured, third party apps that get many regular updates throughout the years!
Here is an incomplete list of notes/note taking apps you may wish/want to look at that are more robust and feature-rich, in no particular order.
INKredible
Liquid Text
Margin Note 3
Microsoft One note
Nebo
Notability
Notepad+/Notrpad+ Pro
NoteShelf 2
Notes Plus
Notes Writer/(Pro)
Notebook
Good Notes 5
Zoom Notes
Quick Notes X Pro
Best of Luck to You!