1. Generally speaking, on single-track main lines, the passing track was on the opposite side of the main track from the depot. That way, if an inferior freight train had to take siding, it would not block passengers from boarding a passenger train on the main track. When opposing passenger trains were scheduled to meet at such a location, the normal practice was to allow the train taking siding to do station work, on the siding, while awaiting arrival of the superior train (which would approach on the Main Track, prepared to stop short of the platform if the passenger train in the siding had not finished station work. In that case, the superior train would pull down and do station work after the inferior passenger train had finished. Schedules were arranged, however, so that -- if both were on time -- the inferior passenger train would have time to finish station work and pull down to the end of the siding to meet the superior train, and leave the siding as soon as the rear car of the superior train (carrying the markers) had passed, so that the superior train could just glide in and make a normal passenger stop on the Main Track.
This routine worked when both trains were on time. If one or both were running late -- or running in sections -- the process could be a little different.
2. And, yes, main line trains served small stations. Not all trains did this, however. When there were multiple passenger train schedules, the limiteds were not scheduled to stop at small intermediate stations* but there were slower trains that had many more scheduled stops. At the bottom of the prestige order were the local passenger trains which were scheduled for a regular stop or a flag stop at every station.
* Limiteds had conditional stops (listed in the employee timetable) where they would board or set off passengers traveling to or from a station far beyond. For example, the Santa Fe Chief had no scheduled stops between San Bernardino and Barstow, but would stop at Victorville to board passengers traveling to Albuquerque or beyond. If there were qualifying passengers holding tickets for that date, the Engineer and the Train Crew would have a message attached to their Clearance card at San Bernardino, instructing them to make the Victorville stop. This was to prevent travelers from using the premier, fast schedule, passenger trains for local trips. An intermediate train the Grand Canyon, took care of the important intermediate stations and had a slower end-to end schedule with more conditional and flag stops.
And there were also flag stops in the schedule for passenger trains at stations where only a small number of passengers boarded or alighted and there were not passengers every day. Approaching a flag stop, the Engineer was required to approach the station at a speed that would allow making a smooth station stop if the train was flagged by station employees (or passengers at unattended stations). If nobody came out to flag, the train continued without stopping and resumed speed. This could be an opportunity to make up time if the train was late on its schedule, but, if it was on time, the Engineer would run at less than maximum authorized speed, to the next location where a time was shown in the timetable, to "burn off" the time built into the schedule (but not used that day) for loading a couple of passengers at the flag stop. If the train arrived early at the next station where a time was shown, then it would have to stop until the time shown in the timetable at that station. Departing any location ahead of the time shown in the timetable was a serious rules violation and normally resulted in the crew being dismissed.
Approaching any station, one mile in advance, the Engineer was required by rules to sound one extra long blast of the whistle, thereby alerting station personnel (or passengers at unattended stations) of the train's approach. This provided an opportunity for the person who was going to flag the train to be in position with the flag or the lantern.
I only intended to write a short paragraph, but the answer was more complicated than a simple yes or no, and the number of us who actually ran passenger trains in the days of Timetable and Train Order operation is dwindling fast. So, I hope that the full explanation of how it worked and why it was done that way has not been just a long, boring sermon on obsolete operating practices.
