1. No. It can be in any mode.
2. Use a straight-thru ethernet cable.
3. It is for when the Merlin system is sitting behind a larger PBX (i.e. Definity). You don't see it much but sometimes different offices or groups have had their own phone systems only to be consolidated as a larger group. You can tie all the groups together without having to buy all new phones for everyone, but users typically have to dial 99 for an outside line, or 9 (or another access #) to access another group.