...Is this correct?
Not exactly. It's more like this:
1. TradeFortress issues a cryptographically signed, digital promise to provide actual Bitcoins in the future when the promise is redeemed
2. TradeFortrees breaks his promise.
No, he just gave people Ripple TradeFortress bitcoins - they have a market value independent of bitcoins based on demand. People can trade these coins and establish a value based on market forces.
Since the word 'bitcoin' is made up it can mean anything - the word 'bitcoin' has no legal status.
If I say I'll give you $20 which $ am I referring to? Australian? Canadian? or my own made up $ currency?