Can a DC regulator reduce/step down DC voltage?
Yes they can. They sort-of put themselves between the IN and OUT pins as a resistor. They watch the out pin. If the voltage is > 5V they make the resistor value higher, if the output voltage is &lt; 5V they lower the resistor value. Thus they maintain the 5V at the output.

Like a real resistor, the difference between input and output voltage (multiplied by the current supplied by the OUT pin) is dissipated as heat. Hence such a linear regulator is not very power-efficient (a switched mode regulator is more complex, but much more power efficient).