Echo detection for localization
My doubt is, when the sound signal is reflected back, it is greatly attenuated and distorted due to many factors.


That's true!


  Do they use MFCC(which I think is only good for audible range) 


I don't see how MFCC come into play here, at all. Radar/sonar applications typically depend on some kind of comparison between TX and RX, and a power spectrum only observation can't help you at all here.


  for identifying the echo or are there any other better techniques?


yes, there are – for example, simple cross-correlation would do.