It will spit out a rootfs, or even a block image for a disk, which might make it _look_ like a single application. You will probably update your system by flashing that entire rootfs/image to your target device as if it was one application.

However, it is still Linux under the hood, so there is a kernel + whatever other applications you want running on there, all as separate processes.

You may also be thinking of busybox, which bakes an implementation of most of gnu coreutils into one file to save space. Many symlinks are often created to that sesame file, and when invoked the process can check what name it was invoked with to determine its behavior.

No. It creates a root filesystem that follows your choices of what should be included and tries to be as minimal and small as possible by default. Very suitable for embedded devices and lightweight virtual machines. You can have it build a kernel as well. I use the ability to create a cpio archive for an initramfs on the Linux boxes.