Well, good questions. Let's try to answer them.
1° the best program is Notepad (yes, you have understood well): open an existing MD (maybe an original one) and simply modify it as you like, using Roberto's guide;
2° nowhere exactly: i mean you must search informations about the track (using the web, youtube or this forum, for example) and try.
Let's do an example: i like Rio Oval track very much. So i have searched for infos, and discovered that is a very bumpy track, with low grip: i manage the MD to set the correct values. About track grip, there are different ideas: my personal one is to set the grip from 16000 to 16800 (about) 'cause i use a forcefeedback wheel without traction control help (under 16000 is quite impossible to drive the car without spinning everywhere). About bump table, well, try changing the values and then have a lap on the track to feel what's happened (i like to set the city tracks, as Long Beach, quite bumpy, then driving becomes a real challenge; keep in mind that the original tracks are set to very low bumping).
3° the best question: i think that if you want to play gp3 at its maximum, you should play it with a forcefeedback wheel, without any help (traction control, brake, steering...). Then you must know something about a race car setup, at least: setting the wings, the gear ratio, the springs, the antiroll bars (yes, ok, these are the setting in the game, at level 2: it's not by chance).
The game itself helps you, as when you open the car setup menu and point with the mouse a setting, you get a help-window that explain to you the essential working of that part of the car. But, as always, the best is to test, then test and finally test.
Hope this can help you. Anyway, let me know.
Bye.