In answer to your questions:
1) You can have as many or as few categories as you wish, so yes the theme will work even if you have 3 categories only.
2) If you're referring to new post notification, users can subscribe to rss feeds, including for specific categories.
3) This is not a feature built into the theme, however there are related ads plugins available in the AppThemes marketplace
here and
here which may be of interest.
4) There is only one registration type available in ClassiPress, so adding others would require customization on your part.
Our themes are not encrypted, so essentially you are fee to make modifications if you wish. Thanks.