Assuming you are happy with the performance and the tone/sample/instrument, there's no reason you need to use MIDI.
There's
plenty of reasons to use MIDI. One example -- say you play a song, it comes just as you want, and then a singer comes over to add vocals, but it's in the wrong key! If it's audio, you have to transpose the fingerings and then play the whole thing over again. If it's MIDI, you can select the track and transpose all the notes up or down as much as you want.
Likewise you might have some performances that have parts you want to extract and use as horn parts, or perhaps transpose them a fifth or fourth or whatever and create some harmonized lines. Instead of playing the parts, you could select just the group of notes you want, move them to another track, transpose them as desired, and voila!
As my final example, you have a part you've played, and you want to give sheet music to a horn player who's coming over to play on your recording. If you recorded your demo synth part as MIDI data, you can print up a sheet lickety-split.
Sure, a lot of these things can be done readily by an adept keyboardist and transcriber, but being able to do all these things can save a lot of labor. Not to mention that you can put together stuff painstakingly if you don't have any keyboard skills-- or you don't have hands...
Think about the difference between typing letters with a typewriter and doing it with a computer -- being able to save, edit, change, copy and paste at will, reuse material, etc. Using a MIDI sequencer is a lot like that.
I'm not expert on all of this, and I don't use Cakewalk, but I believe you can record both the sound and midi information of your playing at the same time.
Absolutely.
I'm not sure what the time resolution is, but it's very small relative to your reflexes.
In most applications it's adjustable, and there's a maximum (smallest units) resolution. In SONAR, it's 960 ppq (parts per quarter note. That is, for every quarter note duration, you can divide the beat up into 960 ticks.
Let's see... at 120 bpm, 4/4 time, a quarter note lasts .5 seconds. So each tick would be 1/960th of a second. The time between ticks at that tempo and time signature would be about 0.0005 seconds, or half a millisecond. A very small instant indeed, quite negligible in terms of the accuracy of the music. The difference between timing caused by players reacting to other players several feet away is typically more than this. Sure not enough to disrupt the groove too much...
From SONAR's help system:
"In some projects you may need a different timebase. For example, if you wanted to use eighth-note septuplets (7 eighth notes per quarter note) and represent them accurately, you would need to have a timebase that is divisible by 7, such as 168PPQ."