Will airline credit cover taxes and bag fees?

Often not. On many airlines the credit applies to the base fare only, and the extras must be paid separately.

Can hotel credit be used at any property in the group?

Usually at group-operated ones. Franchised properties often opt out, and those are common in smaller towns and at airports.

What happens if the trip is cancelled?

The refund normally returns as credit rather than money, sometimes with a shorter expiry than the original card.

Travel gift cards: useful, but read the booking rules

Four different products

Airline credit. Usable on that airline's own flights, sometimes excluding partner-operated ones.
Hotel group credit. Works across the group's brands, though not always at franchised properties.
Rail credit. Straightforward within one operator or one national network.
Travel agency credit. Broadest, and the fees are higher.

What travel credit usually will not cover

This is the list worth reading before you buy:

Taxes and surcharges. On some airlines these are a large share of the ticket and must be paid separately.
Seat selection, bags and extras. Frequently excluded.
Booking and card fees. Often excluded.
Third-party components of a package, such as a hotel booked through the airline.

The pattern is consistent: credit covers the base fare and not much else. A £200 credit does not buy a £200 trip.

Dates and seasons

Some travel credit carries blackout dates, or excludes peak periods. This is more common with hotel and package credit than with airline credit. If the trip is for a specific date, confirm it is not in an excluded window before anything is bought.

Refunds are different here

Travel bookings paid with credit usually refund back to credit, not to money, and travel refunds are slower and more conditional than retail ones. If a trip is cancelled, the recipient may end up with credit that has a tighter expiry than the original card.

Currency

Travel is the category where currency matters most, because the booking may be priced in a different currency from the card. Paying with a card in one currency for a fare in another can involve a conversion you did not choose. There is more in gift cards and currency.

Choosing an amount

Two honest approaches:

Cover a whole component: a night, a return fare, a rail season leg. Clean and useful.
Make it clearly a contribution to something bigger, and say so.

The thing to avoid is an amount that nearly covers something, because then it does not help them decide anything.

Who it suits

People with a trip already planned. Much weaker as a speculative gift — travel credit with no trip attached tends to expire.