1. Benefits are two-fold, as mentioned above. You have time to explore fields that aren't part of the core 3rd year rotations (gen surg, psych, FM, IM, peds, ob/gyn, +/- neuro). Many medical students will have little/no exposure to radiology, ophtho, anesthesia, derm, PM&R, or any of the surgical subspecialties (plastics, ENT, ortho, neurosurg, urology, etc.).
More elective time during the third year allows you to see fields that might interest you, but you wouldn't be exposed to otherwise. And a rotation will allow for a much better exposure than you'd get shadowing (which I'd argue is a pretty poor way to judge different fields).
2. No. 4th year sub-Is matter, 3rd year rotations do not.
3. More elective time during the 3rd year allows you to make a strong decision about career choice after getting exposure to different fields. You can schedule multiple rotations in the same field to make SURE it's what you want to do, or you can try for a broad exposure.
I've written that multiple times because it's really the major difference between medical schools, and should be the deciding factor for most, if not all, students. If you go to a US MD school, your preclinical curriculum will be pretty much the same anywhere you go. Pre-meds like to focus on a lot of **** that really doesn't matter, like curriculum style, "early-patient contact" (almost universally a crock), facilities, etc. Whereas, I'd argue the only thing that will significantly impact your education is the clinical years.
For me, we only had 2 elective blocks during our third year. I thought I wanted to go into one of the two fields I rotated in, but ended up liking neither. Now I'm trying to schedule my 4th year rotations last minute since I have minimal exposure to the field I might be pursuing.
Do yourself a favor and go to a school with rotation flexibility. Don't get backed into a corner and have to make a last second decision that will define the next 30-50 years of your life.