Andrews, I've only just done this so I can't claim to be an expert, but I'll take a shot at some of your questions if you like. I'm going to give you my best answer, so I stand (preemptively) corrected if someone more knowledgeable wants to weigh in on the subject.
1: I'm honestly not sure. I used Ace Hack Kit to root, and that had everything set up for me already.
2: It basically just allows you to boot to a screen that gives you various options on flashing roms, etc. It seems to do more or less the same thing that Rom Manager does, but works if you can't get to Rom Manager. It will not damage or do anything weird to your phone, and it is required to complete the process of flashing a new Rom.
3: I don't know if somehow Android Revolution does this. I suspect it doesn't. If I were you, I would install Titanium Backup (free from the market) and back up all of your apps with that. It's a simple process and only takes a few minutes. All of my apps + app data are up and running flawlessly after flashing my new Rom.
4: It should keep the contacts in your Google account but not the ones on your phone, unless they are stored in your SD card. Backing up your contacts to your SD card is a simple and quick process and can be done right from the "People" app. When I did it, I backed up my contacts to Google AND to my SD card, just in case.
And last but not least, before you flash the new Rom, make sure you back up your current one through Rom manager. I had to flash back and then forward twice before I had everything figured out with mine, and, if you're like me, you always want to keep the ability to flash back to the phone's original state just in case something goes wrong with your new Rom.