On a multisite network, this makes a child site use the main site's categories and taxonomies instead of its own.
If you're using multisite to separate out parts of a website that still have some connection to each other, then you may want to use the same tags, categories and other taxonomies across them all.
In the taxonomy tables for the parent site of the network.
Yes. Activate the plugin on each child site that you wish to use it for. In this case, do not activate the plugin across the whole network.
No, it's all or nothing.
In most cases, yes.