an exchange is a place (a website) where you to exchange your money to bitcoin and vice versa. in other words sites that you trade on such as Coinbase.

the 1% is pretty high compared to other places. i am not sure about the exactly percentage of each of these places but you can check them out yourself. they are usually 0.15 to 0.25% for each trade depending on some stuff like the amount you have traded before, some places have a fixed percentage some don't.