1a. Not necessarily, but it eases things greatly.
1b. You do not want to ask how to get that in here.
2. It's a way to execute non-official code in your PS2 using a design-fault in the system. The hardest part is that you need someone who has the ability to transfer certain files to your memorycard. That requires a PS2 with a modchip or a product which can be used to transfer data between the memorycard and a PC. Search the forums for more info.
3. Any HDD should do but stay away from Western Digital ones. They place the connectors in the drive differently from other manufacturers and that causes problems connecting it to the network adapter.
--- Signatures are just lame excuse to waste bandwidth ---