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The primary function of the Reset Password application in OS X Recovery is indeed to reset user passwords and permissions. This tool is specifically designed to assist users who have forgotten their passwords or are unable to log in due to issues with their account credentials. By using this application, users can regain access to their accounts, ensuring they can continue to use their system without losing any data.

While creating a new user account and deleting user accounts are tasks that may be performed in the system settings or through other management tools, those functions are not the focus of the Reset Password application. Similarly, accessing terminal commands involves a different utility within OS X Recovery and is not related to the password reset process. Therefore, the emphasis on resetting passwords and adjusting permissions is what distinguishes the Reset Password application's primary function, making it essential for account recovery scenarios.