You've really bitten off a number questions here that are hard to answer... Compression, I think is a good thing... You need to use it judiciously - Over doing it will squash your music like a bug on a cargrill... Like a previous poster stated, Experiment, experiment...
Technically in the scheme of things, you don't really "need" compression anymore... The dynamic range of playback devices like radios and CD players are starting to be able to handle anything you can throw at them...
Although, adding just a small bit of Compression on projects can help "lock things in" so-to-speak... Compression can also help control vocals and instrumentation that have problems with staying in a certain "volume range"... I work with one client where her vocals are so up and down that compression is a must...
If you want to just get started though... A good product to work with would be an Alesis NanoCompressor... It's only 89.00 bucks, but has all the tools to help you learn just what compression is and just what it does before you sink bigtime cash into something you're not sure about...
I purchased one to use as a "control tool" to help with small problems in dynamics - It sure did pay for itself...
Compression really does help "lock things down"... Before I used one it was hard to get things to "sit properly" in the mix... But, using even just the Nano Compressor has made me believe that small amounts, in the right place really will make your music come alive...
You can check out a review of the NanoCompressor at my site:
www.members.home.com/bkriverdog
Select the "periperals" page and you'll be good to go...
Good luck...
And let me know what you think!
bry
Riverdog Productions
www.members.home.com/bkriverdog
bkriverdog@home.com