Hi,
1) not sure (don't use it) - perhaps yes, you need to add a photo is correct size (check X-Cart Admin -> General settings to see if there is a place to set the size of images for variants)...
2) Yes - you can change the price... it is based on the choice of which type of option you use i.e. use "Option Type" = "price modifier" you can then set a option to be either X% or $X more expensive than base... e.g. if S (Small) is base price you could do...
Small
Medium+2
Large+3
(Note: this means if small size is 2.99, medium will be 4.99 and large 5.99).
See the X-Cart manual to understand more -
http://www.x-cart.com/xcart_manual/online/product_options2.htm?zoom_highlightsub=product+opt ions
Cheers - Asiaplay