1) Priests heal Demigods, one heal from a priest every 10 seconds I believe. They do heal creeps and themselves too.
2) No, but different ranks of priests are on different timers. So if you use to buy-summon-resell trick to get different ranks of priests, each of those types will heal once/10 seconds.
3) The last point in his minion line allows them to steal health, which shows as small bits of healing.