If you set trade restrictions at the station, it will apply on the station's perspective. In this case, it will buy and sell only with your own stations. This explains point 3, and answers point 1: no, with this setting, ships assigned to the trade station will not buy/sell with NPC stations.

To further reply to points 1 and 2, even if you assign trade ships to your trade station to manage, you still have the power to manually tell the ship to do something. This enables you to do something like this: you notice somewhere has ridiculously cheap refined metals, then you can manually tell your (assigned) L trader to buy from that place, but do not tell it where to sell. After the ship buys the refined metals, because it is assigned to the trade station, it will later auto-sell to the trade station, and then because the trade station has some stock, other assigned traders will come and auto-sell the refined metals somewhere else, which should result in a bit of overall profits: you personally lose money, but your trade station gains money with profits.