#1
I've been playing guitar for a few years now and somehow I have never heard of "string action" until just recently lol Don't ask me how. Can someone please explain to my ignorant self what string action is please
Gibson Les Paul Standard Ebony
Epiphone SG G-400
Schecter C-1 Blackjack Diamond Series
Fender CD140SCE
Peavey ValveKing 112
#2
I assume you are talking about "Action" which refers to the space between your strings and frets...for example low action means its easier to fret a note than if the strings were further from the frets or if the action is "high"
#3
That about sums it up. Ideally, the action is adjusted for the individual guitarist depending on how he plays.
Someone who does a lot of hard, energetic flatpicking will likely need a higher action than someone who does gentle fingerstyle.

Also, a higher action can produce a bit more volume, and is preferred by some players who are willing to accept "working harder" for the ability to be heard in a string ensemble.

Adjustments are made at the nut and saddle, usually by removing material. Here's an excellent guide:
http://www.frets.com/FRETSPages/pagelist.html#Musician

Look at the "instrument set-up" section.