Time Machine with multiple users on single computer

When you first backup it will backup your whole system (user directories, system directories, applications, etc) unless you specify folders to exclude. When a user account is added to the computer, their home folder will be added to the backup in a similar way to if you added a new application. It will back up the directory structure exactly as it is on your main hard drive. The backup will essentially keep a copy of the whole hard drive on the backup drive.

The Time Machine will either be on for the whole system, or off for the whole system. It is not on or off for a specific user account. Users (depending on if they've got admin privileges) may have control over turning time machine on or off, but this does not change who can access the backups. All users will be able to invoke Time Machine to get to their backed up files.

Time Machine does not make separate backups for individual users. Instead, it preserves the permissions for backed up files, so while every user can access the backups, they cant just browse other users' files on the backup. The same restrictions on the main drive are carried over to the backup. Still, a standard user who's lost a file will be able to go into Time Machine, access a backed up version of the file, and restore it. Unlike standard users who are restricted from seeing other users' files in the backups, Admins are also restricted but they can be authenticated to view other users' files if they want to.

It will by default back up your entire system, including all user files. This is not duplicated for each user account, as Time Machine treats the whole system as one backup. As such, if you add users their home directories will be backed up (preserving permissions, so other users cannot browse their backups) but it wont create another whole system backup for that user. Time Machine's preferences are at the system level, not at the user level. To restrict specific files and folders you can go to the Time Machine system preferences and set up some "exclude" folders so Time Machine will ignore those folders.

Yes, you got it.