Hi Satyanarayanan,
Its good to see your curiosity to learn about Budgeting in SAP PS. But, the questions that you have asked are very basic questions. Although, I can answer your all queries point wise but I feel that will be very tedious job to explain each thing here because there are many processes related to configuration also like tolerance limit, usage controls, setting budget profiles and many more. So, I request you to search budgeting topics in forum. I am sure you will find the documentation. I have also google it and found some documentation for you.
Budget Functionality in Project System
SAP PS - Configure Budget Availability Control
http://help.sap.com/saphelp_470/helpdata/en/1b/75a9371c726343e10000009b38f842/content.htm
Multiple currency planning and budgeting? | SCN
Regards,
Amit