Question 3:
The way i understand it is, that the left dropdown selects the LAYERS in your script (for example: REFLECTION_PASS, BEAUTY_PASS, if you are working with cg-renders, just as an example or something like that) and the right dropdown then selects the actual CHANNELS in that layer. For example, your REFLECTION_PASS would still have an R, G and B channel of its own, and maybe an AlphaChannel.
I dont know if i explained it in a good way or not, so if anyone else knows how to explain it better or sees that i am wrong, then i beg pardon and hope for correction. But in a nutshell, this is how i understand and use it and never came across any issues.