The paste needs to stay "wet". It it dries out, that's when you need to clean it off and reapply.
Bubbles don't really develop unless you apply too much, and yea temps would be higher if there was too much. The "set in" period of the paste, depending on the paste you used, ranges from a couple of days to a week.
You can start overclocking right away, the temps will gradually drop slightly during the set in period, but during this period you're still free to go about normally with it.
And yea, you're correct with number 4.