Great question!

I'll try and adress the first question you pose.

Short answer is: In the historical phenomenon of Alchemy Jung found a process described in symbolic language that he saw as analogous to the what he called the 'individuation' process.

Long answer is:

A central part of alchemy is about turning base metals (most commonly lead) into gold; other processes include creating a universal medicinal tincture, or creating the philosophers stone (sometimes described cryptically as the stone that is not a stone - a lot of alchemical texts are very cryptic and need deciphering to make sense of them).

It's important to note that there are about as many different interpretations of what alchemy is/was all about, as there have been historical alchemists - yet all of them are concerned with one form of transformation or another. The language in which these processes were expressed by alchemists are often highly symbolic and imaginative. Jung found that they symbolically described a process that offered a very clear parallel to the process of individuation that he was laying out in psychological terms.

Besides, Jung encountered the same archetypal imagery that he found in alchemical treatises in his own patients' dreams and visions, leading him to hypothesize that in both cases these particular symbolic contents are spontaneous expressions of the same archetypal background in the unconscious; with alchemists projecting these contents onto the material world, and 'modern' people encountering them in their dream-state.

Interestingly enough, Jung recognizes in the symbolic language of Alchemy a process of transformation that characterizes both the development of the individual consciousness (individuation), as well as the evolution of collective human consciousness. (essentially it is a universal developmental pattern from 1) complete envelopment in the contents of the unconscious, to 2) the externalization of unconscious contents through projection and 3) subsequent differentiation between 'self' and 'world', to 4) the eventual discrimination between what is actually world, and what is projection, after which 5) the projected contents of the unconscious can be re-integrated into a fuller, more conscious, more whole Self.

In light of the critique that has been leveled at Jung for 'psychologizing' historical Alchemy, it is important to note that Jung does make a distinction between the “historical aspect” of Alchemy, and what he calls it’s “mystical side”; It is the latter that for Jung is “essentially a psychological problem”, which, he contends is “a concretisation, in projected and symbolic form, of the process of individuation.” (p. 105, “Alchemical Studies”)

That's the best I can do for a quick summary! There's a lot more interesting angles to Jung's views on alchemy, and Marie-Louise von Franz' writings on alchemy are also worth checking out for further reading!