A simple answer from me: it's a game.
I'll just say this: I take these gender options as the way that the science has evolved so much in The Sims 4 that same-gender couple can have babies. What exactly have they done, I don't know. How they make X into Y, I don't know.
Of course, XX males exist in real life. They were born male, just SRY-gene got into X gene and decided to activate. This does cause infertility though... Nah, it's a game. Not everything in games make sense...
So, let's say that the science in this area has evolved, ok?