Sagging is thought to have begun in US Prisons where prison dudes would sagg their pants so that other prison dudes would tell that there gay and want to do things to each other!
No, it is modern and started in the prison systems here in the US. The lower the pants means that the person wearing them is "open for companionship" from another prisoner.
Well surely this depends on your local laws. If a townordinance is passed banning the wearing of pants below a certain level then yes it is possible (yet not probable) to be arrested. Although its...