Collision masks may end up being overwritten by the animation frame if you create it first. However, you can just copy and paste the collision mask back later.
Yup, that is fine for creating collision masks. Then, if you want each frame to have it, right click the frame with the right collision mask and you should see an option like "copy collision mask to all frames" I think.
EDIT: Just re-read, yes, you need a collision mask for each animation frame, but it will be generated automatically when you edit it if you do not have a custom one.
That depends on if you want the character to be collided with entirely. Sometimes you only want a certain part of it to collide (eg: you usually don't check if the string of a balloon is colliding with something, that would just make the game look buggy).
The hotspot is the "centre" of the sprite, the point that you pull X and Y values from. This is also the point that the sprite rotates around.
Image points are handy for attaching objects to each other, for example in an action game you can attach a gun to the players hand by having an image point there that moves with each animation frame. They also rotate with the sprite.
Sadly, image point collision only works for the hot spot I think. However, you can choose three different collision modes "per pixel", "bounding box", and "image point". Collision masks are only used in per pixel mode.
Invert means that whenever the condition is not satisfied (eg: inverted always events never happen, while always events will always happen).