I would think most people use it for bookmarking, but it seems like another portion of users use it as a "like" button.
It is kinda both. It also reposts the project for your GitHub followers.
Nobody knows but since we are at the point where you can get VC money if you have enough, there is an incentive to get them.
They are currency of reputation and status. If you have enough stars, you get invited to private parties with elites. (I am just joking, they are bookmarks who got famous)