1) Polish does a bit of cleanup and updating as configured. It performs this
ON the Library copy (what you see is only added to exported books)
Polish is not a conversion, thus make minimal changes.
2) Device settings (you do that while attached); Right click: configure device.
The order is the preferred version (if ticked). The first is the one used for Auto-convert if allowed are not avail.
3)I think this is Preferences: Look & Feel: Partitioning... (a tab). The menu allows it to be 'excepted'
4)Absolutely AS LONG AS IT IS ATTACHED (no NAS, No shared). A Spinning HD is recommended over a SD/flash type.
Use disk management to lock the drive letter (above any likely to be used. L: (for Library) to keep the location stable. Right click the Library Icon: Switch/ Create: Move to...
The configuration folder will remain in your (per)user preferences (it is fairly small)