Custom image style used on image upload causing errors
Files will be renamed to prevent collisions. Off the top of my head it adds something like _1 to the filename.
Yes that's correct. I'm not sure about the scale but that sounds like it would work. If the image is too small, it will get scaled up. If the image is too big, it will be resized down then scaled and the scaling shouldn't have any effect.
That all sounds like it's working as intended. You have a simple problem with directory permissions within your sites/default/files directory. If you're in a dev environment try doing chmod -R 777 files (Then you know it's a permissions problem and you can set them properly). Problems like this are usually either because the file cannot be read or written, in your case it looks like writing. The PHP stream wrappers mentioned in the error message are enabled and working, don't worry about that, it's standard PHP. If chmod doesn't work, try changing ownership with chown.