There are two types of upgrades:

Normal package upgrades Release upgrades

The first don't change the version of Ubuntu, only the specific packages involved.

Yes. You have to upgrade to 12.04 before upgrading to 14.04. The second type of upgrade, release upgrades, changes the version of Ubuntu, and affects every package (almost all of them will get upgraded, some very stable packages get version bumps but remain the same).

Q3: Upgrade advice

Don't do release upgrades (to 12.04 and onwards) now. Stick to 10.04 for a while until you get comfortable with the environment. 10.04 Server will continue to receive security upgrades until April, 2015. So you have until then to make the upgrade to 14.04. However, don't save it until the last minute!

Study the changelog carefully before upgrading packages. You can use the Synaptic Package Manager, if you have a GUI, to do so, or aptitude . There will be interruptions if a service is involved (most service packages stop and restart the service concerned). However, major breaking upgrades won't be available (such as between Apache 2.4 and Apache 2.2), so the service should restart up fine in most cases.