1. So, there are two different copyright-related things on YouTube. One is an automatic system of matching content called "Content ID". large copyright owners can submit fingerprints of copyrighted works to content ID, and then when these fingerprints are matched in other videos, the copyright owner can choose to monetize the video for themselves, mute the video, or block the video in some or all countries.
But the second thing is a manual system -- the DMCA requires that YouTube respond promptly to requests by copyright owners regarding material that infringes their copyrights. When a copyright owner sends a DMCA takedown request, YouTube will take down the infringing video and give a copyright strike.
So, please note a few things:
a) Content ID and DMCA takedowns are different. Content ID should not lead to a strike, but a takedown will.
b) Copyright enforcement is generally driven by copyright owners. So it's not "how YT deals with copyright", but "how YT deals with copyright owners, who deal with copyright."
2. Not unless you have either explicit or implicit permission. Photos and images also have copyright, so just using random images is not a good idea. However, you can find photos and images that are creative commons, which would be implicit permission by the copyright owner to allow you to use those images in certain situations. In google image search, there is an option to search for images based on usage rights. You should always double-check that the usage right is correct, but this would be a good starting place.
3. Are you asking about royalty free or creative commons? Because "royalty free" generally means "You pay a one-time fee so you don't have to pay ongoing royalties". There should be a number of sites that allow you to purchase royalty-free licenses -- since I don't use any specific services, I can't give specific recommendations. If you want royalty-free licenses for more mainstream music, that's generally going to be veeerrrry expensive.
4. So, when someone reports someone else for copyright, that results in a DMCA takedown. See my answer for 1...the video is just taken down and you get a copyright strike.
However, if you don't agree with the DMCA takedown, you can issue a counter-notice. Your counter-notification is a legal request to YouTube to have them reinstate your video because you don't think there was any copyright infringement. When you send a counter-notification, you also have to give your contact information -- YouTube then forwards this on to the copyright owner (who originally issued the DMCA takedown notice. Then, the copyright owner has a certain period of time to file an injunction to keep the video offline, or to file a lawsuit over copyright infringement. If they do neither of these, then the video goes back on site and the strike is removed.
Typically, people don't get sued. Someone will give up before it gets there.
