Make TinyURL-like URLs (you.com/33ks8s) that redirect to pages inside / outside your blog. Can also create human-readable aliases (you.com/facebook).
The Link Shortcut plugin attaches itself to various core WordPress methods and waits for a request to be made for a shortcut URL saved to the database. When one is, it simply does a redirect to the saved URL. The redirect type can be changed (301 or 302) inside the options panel.
You must have non-ugly permalink settings. If there are variables in your URLs, you'll have to use WordPress admin to change that.
Yes. Upon activation, Link Shortcut creates a table and stores all links in that table, so your existing structure does not change. If you decide to deactivate the plugin, it removes this table but creates a backup table for your convenience.