#1 The reason for inspection is to verify the installation was done correctly, not to burden you with unnecessary work. Improper installation may be the reason your unit isn't working. In my city, if you don't have functioning backflow device, your water will be shut off.
#2 I believe that's what it means. I use a different style preventer that does not have to even be above ground.
#3 The purpose of these devices is to prevent contaminated water from your irrigation lines from getting into your or the city's water supply. The testing process requires special instruments and some training so it is not really a DIY job. This is especially true if your device has to be officially certified each year. Testing should be done each spring to make sure the unit is still work properly.