Yes, you can debug and step through Python functions called by PyXLL.
You need a debugger that supports "remote debugging". Remote debugging is when you connect a debugger to a process that's already running, rather than having the debugger start the process. This can either be with the debugger running on the same machine the Python code is running on, or a different one (hence why it's called remote debugging).
Many Python IDEs support remote debugging (PyCharm, Wing, Eclipse, Visual Studio and VS Code all do).
For instructions debugging with PyCharm, Wing, Eclipse, Visual Studio and VS Code please see this blog post https://www.pyxll.com/blog/debugging-your-python-excel-add-in/.