James,
Let me start by offering some web links that might help with some of your questions:
http://home.comcast.net/~candcb1/index.html - Online Historical Reference of Railroad Signal System Aspects & Indications
http://mysite.du.edu/~jcalvert/railway/prraspec.htm - PRR Position Light Signal Aspects with Operating Rules (Sorry, but I'm a Pennsy fan)
Now, let me try to provide some general responses to your questions.
1. A signal usually protects some piece of property or some person ahead of it as well as the property and persons approaching it. Thus, if a block is occupied or otherwise unsafe, the signal protecting that block should require a complete stop of the approaching train. Of course, tons of train moving at speed can't stop on a dime, so the immediately preceding signal, in some sort of "caution" mode, should warn the engineer / fireman that a stop may be necessary soon. Often, if not always, there are two blocks presenting this "caution" signal with the closest to the stop signal requiring the most slowing of movement. This means, that the signal two or three blocks (depending on the number of caution blocks) will be the last "proceed as normal" signal before the slowing and stopping for an occupied / unsafe block is required. Thus, to be prototypical on a simple oval would require at least three blocks to allow for a proceed, caution and stop sequence.
2. Sidings are a function of how busy the mainline is at any given point in time and how long the mainline happens to be. You could run a train from Chicago to LA, and vice versa, with just one siding if those were the only two trains running on that route. However, if one train or the other was seriously late for the scheduled "meet" at the siding, the timely train would also be delayed significantly.
3. Use of signals in modelling depends on the degree of realism you choose to follow. Many available signals work on a "timing" basis so that when a train passes the signal, it turns to stop for any following train. After a few seconds it changes to "caution," and after a few more seconds, it turns to "proceed" again. On the other hand, signals can be wired to actually stop or slow trains, depending on the indication. Of course with the "proceed" indication, the train just passes right on down the track. Depending on your electrical engineering expertise, I have seen stories in various publications where all the signals are wired to a dispatchers desk, and that person controls the flow of trains by setting signals as necessary.
4. Signalling during an operating session is not dependent on the operating power supplies you choose. Rather, as explained above, it depends on the type of signals you purchase and how you set up their operation.
5. Again, there is a lot of published information on this subject. Some you will find on the internet, some in older model railroad magazines, and some in other published materials. I, personally, don't operate yet, but since I'm not handy with electronics, I will probably just use the signals with built in timers to give the appearance of operating signals.
Finally, I have not even considered other signal situations you will discover through reading like crossovers, junctions, sidings, yards and crossings with unrelated railroads. Your choices for depth of realism, amount you want to invest, and depth of knowledge about electricity will determine how you choose to signal your layout.
