Changing from one iPhone to another

Sorry if this has been asked before. I tried a search and didn't come up with anything. Anyway, I'm about to swap my 8GB iPhone 3G model with a 16GB iPhone 3G model and I'm wondering how that impacts the apps, activiation, etc. I'm going to give my old phone to one of our employees. Questions:

1. Will the new phone automatically activate when I put in my SIM and sync to iTunes?

2. Will the old phone need to be reactivated if I put in his SIM?

3. What happens with the apps I download? Do they transfer over to the new phone and deleted off the old one?

Sorry, I'm new to this iPhone and iTunes stuff...