Ubuntu – Backspace, Tab, Del and arrow keys not working in terminal (using ssh)

That probably means that the new user account was created with /bin/sh as its login shell (which symlinks to the dash shell by default) instead of /bin/bash - you can change a user's login shell with the 'chsh' command

chsh -s /bin/bash

or to change another user's login shell (need to be root to do this obviously)

sudo chsh -s /bin/bash <username>

(you will need to start a new login session for the change to take effect). You may also need to copy the default .bashrc from /etc/skel to get the color prompt.

In future you might want to use the 'adduser' command instead of 'useradd' - it sets up a more complete user environment including things like a default .profile and .bashrc - as well as setting the login shell to 'bash'

Your current shell is the problem. You're currently using sh as the default shell, as seen in the output of your env command:

SHELL=/bin/sh

To fix your issue, you need to change to another shell that supports those key inputs (such as bash, which I'll use as an example). To do this, you'll need to use the chsh utility (change shell).

Example:

$ which bash
  /bin/bash
$ chsh -c /bin/bash 

This will update the default shell environment for your user (see more here about full usage). You'll need to logout/login or start a new session to load in to the new shell.

Alternatively, you can utilise another shell by locating its path and running from your current shell. As an example, here's me changing from sh to bash:

$ which bash
  /bin/bash
$ /bin/bash

chris@loki:~$ 

Hope this helps!