Background: I also work as a Toptal engineer. I had similar questions like you have, and I did have years of experience before joining Toptal. I was a Head of Development in an amazing software development company and I loved it. I became a freelancer because of personal and health issues, and it was the best decision I ever made.
Joining Toptal does not cost anything but few hours of your time. I think that you will probably spend a lot of time reading these comments and thinking about them anyway. My suggestion to you, just try it. It will give you an answer better that anyone here can.
As for your questions:
1. You saw it already, but 3% is just a matter of statistics that show facts about applied vs accepted. Screening process is structured to make sure that only developers that are on top of their game can go through it. And yes, I'm one of those that support the thought that even front-end developers should understand basic algorithms and data structures, which is the first technical step in Toptal screening process.
2. Toptal is far more than just a sweatshop. To me, it as a standard software development shop that is just distributed. No different than any other company I worked with. It has a great culture, and I actually became friends with many people I met that work through Toptal. There is a whole team of people that is actually spending Toptals money organizing events and gathering developers so that they can meet for real, and not just know each other by their nicknames. There is always someone from the company that can help with any issue that might arise while you work with a client.
3. As for the rate, you set your own rate in Toptal! However, it is your job to make it competitive. Toptal people can just help you with a suggestion that will get you more work. Eventually, it is your choice to take their advice or not.