I dont bot, but Server might be able to answer (as well as frost himself)
Yes, A VPS is a virtual computer on a separate IP from your home PC
Depends, Windows are about 23$/month and can run 1-2 mirrors, but you can buy linux vps's for much cheaper (Just the way it is) for as low as 3$/month
You really only need 50ish mage/range and 43 prayer and some food/decent hp and a few quests, but your best bet to farm is base 70's with 75 mage, which can be botted (and mage botted/splashed) and Czar/Valkyr scripts should do you well.