1) In sleep mode, your anti virus will not be able to scan. However, it can scan if the computer is idle
2) Yes, the weekly backups over-writes the previous back ups. In "Let windows choose" back up, places like Desktop, Downloads, Music, Pictures, etc are backed up.
So if you store your stuffs on these folders, then "Let Windows Choose" Backup is for you.
3) Normal back up will just create back ups of your files and folders from certain places. creating a system image will back up the entire C:\ Drive so that in case things go wrong, you can restore the entire C: Drive (which includes system files, programs, settings, personal files, etc).
Hope this helps,