Yes, and that is basically all you need to enter before clicking the Fully host this domain now button, all other settings can be left on their defaults.
After clicking the button you should have a new sub-directory in your home directory with the same name as the sub-domain, just like your primary domain has its own sub-directory.
Probably best to leave this on the default, unless you have a need for a specific PHP version (my panel actually defaults to PHP 5 for new domains/sub-domains).
Yes, unless you need that sub-domain to be under the control of a different user. Specifying a different user will mean having to use this users credentials when logging in via FTP to upload to the sub-domain.
You don’t need to, it will be filled when you enter the sub-domain name above, but I guess you can change it if you want the web accessable directory for the sub-domain to be named differently.
Save [color=#CC0000]$50[/color] on DreamHost hosting using promo code [color=#CC0000]SAVEMONEY[/color] ( Click for promo code details )