In answer to your questions:
1) The Photoshop .psd files contain all of the layout/color/size information for all of the pages used within the theme, but you still need knowledge of .css in order to make use of the files. These are useful to developers/web designers who know what to do with these files.
2) The theme doesn't automatically handle locations in the same way that Craigslist does, so you'd likely need to carry out additional customization to achieve what you describe. It has been done by other customers through use of a
WordPress multisite setup with instances for each location.
3) The only items included are those created by AppThemes, it does not include products created by other marketplace developers. You can read more about this specifically on our
pricing page.
4) There is nothing specifically built into the theme for this. Thanks.