1) Witnesses are used for High Availability mode. If the witness crashes,
the principal will still think its the principal and the client will keep on
using it. From

http://www.microsoft.com/technet/prodtechnol/sql/2005/dbmirror.mspx
The witness is not considered a single point of failure in a database
mirroring session, because if the witness server fails, the principal and
mirror continue to form a quorum. (For further information, see the topic
"Quorum in Database Mirroring Sessions" in SQL Server Books Online.)

2) If the principal fails in High Availability mode the client will be
reconnected to the mirror. If for some reason the mirror does not become the
new principal it will be inaccessible.

3) You can't, its read only. You can create point in time database snapshots
on it however.

4) No, its not necessary, but in high availability mode both are necessary.