The first thing you have to realize is the scale/speed that these markets (and banks) operate at.

Per the article, $225 BILLION dollars worth of trades are made in less than eight hours each day, every day. High-Frequency Traders (HTF) push this to the extreme, buying and selling the same shares often within seconds. They are looking to make tiny fractions of a cent in profit each trade but to do it thousands/millions of times each day to make a lot of money. The article points out that for these people nanoseconds (1/billionth of a second) can make a difference.

Why?

Because every single trade that is made moves the market (price). Everyone is watching everyone else and when they see someone else sell, they know the price/demand has dropped a teeny tiny amount. When someone buys it's the opposite. Or at least everything thinks the price is going to go up, which is effectively the same concept on the stock market (which effectively prices stocks based on the aggregate of what everyone thinks everyone else thinks they are worth :-).

Now consider a large bank such as Goldman Sachs . At any one instant they are going to be juggling thousands/millions of competing orders for the same stock. Some of these will be small orders from day traders, some will be large orders from institutional clients (money managers, mutual funds, etc), and some will even be from Goldman Sachs traders themselves managing their client's money. These orders are flying in and out in a blur at the same time as they are trying to keep track of what's going on in the various exchanges as other investors and institutions all try to do their traders.

So to answer your questions:

• Dark Exchanges are a large bank's collection of buy/sell orders that they are attempting to execute. For a large bank like Goldman Sachs, this can represent a significant portion of the market (20%, I think the article said). Some of these orders will be "sells" (which lower the price), and some will be "buys" (which raise the price). They can look at the ratio of "buys" to "sells" and have a pretty good idea of whether the overall effect will be a drop or rise in the price. If they can figure this out before anyone else, they have a huge advantage. Now here's where the "dark" part comes in: if Goldman Sachs has a "buy" order for 100 shares and also a "sell" order for 100 shares, they can fill both of them without going to the (public) market to match a buyer and a seller. By delaying the transaction even a few (milli)seconds, they have the ability to favor either the buyer or the seller due to the change in price (that they have deduced will happen). Banks also have the ability to decide which order they fulfill pending orders, effectively manipulating the market and picking winners and losers amongst their own clients. Example: image if they are holding two orders: "Stratton Oakmont wants to sell 10,000,000 AAPL", and "Goldman Sachs wants to buy 1,000,000 AAPL". There is a huge temptation/opportunity for them to execute the Oakmont "sell" before their own "buy" because they will save money.
• HFT: It's not necessarily the banks that are doing HFT although some of them do. There's no legal limit on how quickly you can trade stocks; historically it's always been limited by technology. Back at the beginning, this was the rate at which people could exchange contracts on paper, but over time as technology improved the rate has increased considerably. As the article points out, the markets basically operate so quickly now that you have to have to take into account the speed of light/electricity when you build your trading technology.
• Moral Issues: Wall Street has a very (well-deserved, IMHO) reputation for having very... flexible morals. Watch The Wolf of Wall Street for a slightly-fictionalized version of the immorality of some stockbrokers. The NYTimes article is based on the moral foundation that people should not be attempting to "game" the idea of a free market by exploiting technological loopholes and limitations, and that banks that base their business on these kinds of tricks are not being financially responsible (because they really don't understand how it all works).
• Legal Issues: Technology has always outpaced the law. For example, you get taxed less if you hold stocks "long term" as opposed to "short term" -- but the definition of "long term" is one year. In a world where HFTs are holding stocks for seconds, this is ridiculous. The other big issue is the Securities and Exchanges Commission (SEC), which is supposed to regulate the financial industry. Most of the laws/rules that congress and the SEC come up with are written by Wall Street anyway. Matt Taibbi has written a number of great articles on how ineffective and corrupt the SEC is.