I am in no means an expert on this, but to answer your questions:
1. MODx shouldn’t do anything to your existing site, and only people who know about the /modx directory will be able to find it. (Nonetheless I would suggest either working with your MODx site ’offline’ which won’t let anyone see the work in progress, or using an .htaccess to password protect the directory. If you make your site ’offline’ in the configuration [under tools] you will still be able to see everything while you are logged into the manager).
2. After the site is finished, you can use DNS to point people to the /modx directory as the root folder; I don’t know exactly how to do it, but your host should be able to help you set it up. (I’m pretty sure on this point).
Hope that helps.
"Great spirits have always encountered violent opposition from mediocre minds." -Albert Einstein
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A sub dir will be fine, just make sure if possible you password protect that entire folder as you dont want google or users crawling a development site.
When you are finished I would suggest you move the contents of /MODx to the / root of your website then run the MODx install again selecting upgrade.
You could rewrite traffic to that dir but it would make more sense just to move the contents of the MODx dev site to the root of the domain.
Aaron.