Running with -testnet is default. You can run with -notestnet, but this will result in an error, as the "main chain" code is disabled in all but the unit tests.

For the features, look here: https://github.com/ElementsProject/elementsproject.github.io/blob/master/README.md

The peg is two-way, but relies on a federation of functionaries that hold the coins in multisig and verify transfers.

On the sidechain side, a 21M UTXO entry is awarded to the functionaries, who transfer coins out of it whenever transfers on the Bitcoin side into the sidechain happen.

Indeed.

Signed blocks are blocks where the proof-of-work mechanism is replaced with a traditional signature. Block creation, for test purposes, is done by a federation as well, rather than by mining.