OK, so CW is not really a part of SolidWorks. CW is an Add-in and hence you will not find any references to it in any SolidWorks documentation.
In simulation your tools are machining from the bottom. You can rotate your part 180 deg and re-run the simulation. Or, when you set up the Mill Part Setup your "Z" is in the wrong direction.
To mill your block I would create the stock profile about 0.010" above the block. You would then create a face mill operation and define the end condition as "up to stock".
Your item 2 has alot of possibilites for doing what you are intending to do. This is really indepth and would take me days to try and type to explain. I will leave you with some starters though. You will have to create contain and avoid boundries to keep CW from machining areas that you need. DO NOT USE AFR. You will end up with nothing except a big waste of time.
What you are doing takes average people a long time to learn even if they go to directed classes. It took our Team Members months to get proficient in CW and we have used numerous CAM packages.