Macs have the option to run a 4K screen at different "effective dpis" via scaling. The default ~200% scaling factor gives you a 1920x1080 work area that is twice as sharp. A lot of folks (myself included) choose to draw larger work surfaces (I use a 5120x2880 canvas with 2560x1440 work area on my 24 inch 4Ks). A 4K screen is high enough DPI that when scaled text still looks very nice (nicer than a native res 1440p display). Doing this (especially on multiple displays) requires a lot of GPU power.
As others have said it is the physical resolution, which is why the term used in macOS is "Looks like X by Y". The default of "looks like 1920x1080" is straight "@2x" - so the rendering is pixel doubled in both axis, giving a crisper image than a same size "real" 1920x1080 display.
Yes, but since you can get 4k on everything from 24" to 84" you'll want to choose between more space or bigger fonts depending on the setting.
macOS can do 'fractional scaling' when the integer scaling isn't to your preference, but the implementation works by rendering to a much higher resolution internally and then scaling down which needs a beefy GPU to run without noticeably overhead.
Yes, but I guess just like I don't know anyone who runs their retina macbook at the native resolution, you don't need to run a 4K screen at 4K. For instance 1080p gives you perfect 2x2 scaling with no blurriness at all since every pixel perfectly translates into 4. I have no idea why you'd do that, but I can see why that's a valid consideration for some people.