1. I don't think I can type up a short simple explanation because then it would require me to explain a few things, one of which is the concept of color space and that's a lengthy topic by itself. There are lots of resources that could do a better job of that, I know there are some tuts on this site.

2. You don't have to use the built in color management at all even when using a linear lighting workflow. Personally I don't use it, since its really only partial correction anyway(it does not correct color swatches) and I've already settled into the gamma nodes + lens shader route.