Terraria publisher 505 Games published a tweet cautioning players against playing online in the Xbox One version until it can remedy a critical issue plaguing that portion of the game.
"We are sorry to confirm that a serious issue exists in the Xbox One Terraria update that was published on July 6, version KTCP-20160531," 505 wrote. "Online multiplayer is broken, and players should avoid trying to use that game mode for now."
You're free and clear to use Terraria's single-player and local multiplayer modes, as only online play has been affected.
The publisher has not announced a release for a patch. "Be assured that we are working on fixing this currently and we will get a fix out as soon as practical."