When you add a file to iTunes the application puts a copy of that file (unless you drag it to the Automaticlly Add To iTunes folder in which case it moves the file) in the correct artist-album folders in the Media folder. That's what "copy to" does. For most people leaving the defaults checked is the best thing. If you decide to uncheck them then you are answering questions here instead of asking them. 😉
As for removing duplicates you do it the manual way if you are concerned about automatic/bulk removal methods accidentally deleting something the method thinks is a duplicate but isn't really. If wanting to use a bulk method the best thing is to make an archive copy of your complete library first, let the tool have at it, then store the archive copy for a year or so until you are comfortable nothing got removed that should not have been removed.
How to find and remove duplicate items in your iTunes library - http://support.apple.com/kb/HT2905
Posts by turingtest2 about different types of duplicates and techniques - https://discussions.apple.com/thread/3555601 and https://discussions.apple.com/thread/3293239?answerId=16042406022#16042406022 (Note: The DeDuper script is for Windows).
May 2014 post on iCloud duplicates - https://discussions.apple.com/thread/6253706?answerId=25867873022#25867873022
Show exact duplicates (Mac and Windows) - https://discussions.apple.com/thread/3555601?answerId=16951281022#16951281022
http://dougscripts.com/itunes/itinfo/dupin.php (commercial)
As for preventing it, I can't help there. In over 10 years in using iTunes I have never had it waywardly create a duplicate. While I am not saying that isn't possible I think you need to carefully study how you are using iTunes and adding media as the only duplicates I have seen were ones I know I created by something I did myself.
