1. How and where do I set my iPhone sync preferences? Does my iPhone need to be connected via USB to my Mac in order to set those preferences, and if so won't iTunes automatically start syncing based on previous preferences as soon as I connect the iPhone?
Regarding automatic syncing when your iPhone is connected, not if you turn off automatic syncing, which I recommend.
This can be done via your iPhone sync preferences or with iTunes.
Via iTunes go to iTunes > Preferences. Under the Syncing tab select Disable automatic syncing for all iPhones and iPods.
Do this before connecting your iPhone to your computer.
After connecting your iPhone to your computer and after launching iTunes if not already launched, select your iPhone in your iTunes source list to select your iPhone sync preferences.
2. Again in the paragraphs starting "If you have multiple folders..." Are you telling me to first create a brand new "parent folder" that has no individual photos but only other folders and then move (or copy) individual photos from my current folder into those subfolders of the parent folder etc.
Yes, if you don't want all photos available in your current folder that is used for storing photos to be transferred to your iPhone. If this current parent folder includes other folders that contain photos that you want available on your iPhone, you can transfer those folder to the new parent folder.
If you want photo albums available on your iPhone, you need to create/utilize folders to serve as albums. Place the photos in the appropriate folders or albums that you want transferred to your iPhone. Place nothing but the folders/albums in the new parent folder that you want available on your iPhone. There should be no photos only available in the parent folder.
Select the new parent folder under the Photos tab for your iPhone sync preferences.
In order to have iPhoto 08, you need to purchase iLife 08, which I believe costs only $79 for all applications included.