They help you get through things. If you didn't have the spells, you wouldn't even get past the 1st level! Here are all of the spells used in the game. Accio: Levitates objects and changes formations...
You buy your spells at Wiseacre's Wizarding Equipment, where you can buy spells with the LEGO studs you collect.
You can't. Why would you want to?
You unlock reducto in year 4 in defence against the dark arts. Reducto is used for breaking the shiny silver locks and knights
For the Xbox 360, use LT and RT or hold down Y and select.