1) It creates various sizes so that all the of the gallery types can be used with no additional processing. You just switch the gallery type and its good to go since the images exist. It takes up more space yes, but generally hosts these days give large amounts or even unlimited space. You would have to customize the code yourself to create these image at a different time and not upload.
2) Processing is only needed if you add a new size to that properties.php file, if you are using a size that already exists, no need to process the images again.
3) We keep the originals so that any new sizes, watermarks, or rotations use the original source. This gives the best quality possible. I would recommend keeping the originals unless you never plan on processing the images after they are setup. Keep in mind that if those images aren't there and you try to process it won't work.
-justin
