1) The transrate.xml file will create a set of key frame aligned renditions of the stream so that you can do Adaptive bit rate streaming. All renditions must be key frame aligned for ABR switching to work.
But the Transcoder only creates the set, it does not enable ABR switching on its own. Here is a tutorial for setting this up:
How to create and play SMIL files with streams created by Wowza Transcoder
2) If you want to use your source stream as the highest quality rendition in the ABR group, you will need to transrate the source to maintain key frame alignment with the rest of the group.
3) Not sure about this. It sounds like you are playing back on of the transrated renditions? Which would have been scaled down by the Transcoder with the default Transrate template. Can you explain further?
4) I believe the template can have what ever name you want to give it. Then you enable it in your Application.xml file. The Transcoder will then give the transrated streams the name of the live stream coming in. To play back a rendition you would use a URL like this for iOS clients as an example: