Re: How UBuntu installation process works - Does it download and install automaticall
Ubuntu uses a so-called repositories that are located on the web. Any packages that Ubuntu made available for Ubuntu are in those repositories. When you run apt-get or synaptic or software center, it will look in those repositories (not the whole web). Synaptic and software center are GUI versions of apt-get; it does not matter which one you use (but on a server there's usually no GUI); there are two other commandline programs, dpkg and one of which I've forgotten the name; apt-get however seems to be the most used.
'apt-get' (as well as the other repository tools mentioned above) downloads the software from the repositories on the web, installs it and applies a default configuration.
Note that Ubuntu does not necessarily has the latest versions of software in the repositories. If Firefox e.g. goes to version 18, you might be stuck with version 17; as long as security patches are made available by firefox for version 17, Ubuntu will provide theme well (a little later).
I think this basically addresses all questions except for '3' to which I don't have an answer.
I also suggest to use 12.04 instead of 10.04; 10.04 for the desktop reaches end-of-life in april 2013 after which you have to upgrade; 12.04 is supported till april 2017.
The server version of 10.04 is supported till april 2015; if you're after a server, that will still be fine.
If you don't make backups of your important data, your data is obviously not important to you.