First of all, why are so many people making a big deal out of challenge mode? I beat it on my first try. Second try etc. I see no issues with it if anything I find it a bit easy.

Interesting to hear that you've been having luck with the challenge rooms. With such a new game everyone comes into it with different skill levels, so let's refrain from indirectly calling people bad at TumbleSeed -- it's a hard game!

Second of all, what does that guy do at the mid sections with the empty gem sack that you can deposit 10 gems into??

That's the banker -- he'll take your gems at a camp and if you make it to a higher-up camp return them with interest! Twice the amount at the next camp, and four times the amount at the camp after that :)