1. Yes. The only hueys that can be inserted when you want to play a cd are system cards.
2. Yes. Saving will either be automatic (like with high scores) or you'll choose a save option from inns, pause menu, etc. It works the same way game saves work in cd games, which is the same as saving in genny, snes, nes, etc. games.
3. Press Select on the BIOS boot screen. The first option is 'delete', which will allow you to see and delete each individual save file; the second option is 'format', which will delete all saves and is sometimes necessary if the save ram gets corrupted; and the third option is 'end', which takes you back to the boot screen.