icloud family sharing

See the following from Share an iCloud storage plan with your family - Apple Support

When you share a storage plan, your photos and documents stay private and everyone keeps using their own accounts with iCloud—just like when you have your own storage plan. You simply share the space available in the iCloud storage plan with your family members, so you only have one plan to manage.

and regarding the second question, see the following from the same link:

When you share your iCloud storage, any family members using the free 5GB plan are added to your family plan automatically.

If a family member is already paying for their own iCloud storage plan, they can choose to switch to your plan or keep their own and still remain part of the family. When they switch to the shared family plan, they get a refund for the remainder of their personal plan. They can't keep their current plan and use the shared family plan at the same time.