The version 10 Product Guide is horribly confusing on this topic.
When you have an existing installation of 9.3.x extension you can check in 9.4 or 10 extension in parallel to 9.3 in the 'current' repo. Therefore your 9.3 clients will be managed by the 9.3 extension as normal and your new 9.4 or 10 clients will be managed by the new extension. During the migration phases you will have two Policy Managers and two Incident Managers.
Then run the 'DLP Policy Conversion' ePo server task which ports 9.3 policy to 9.4/10. You will then edit the new policy in the 9.4/10 Policy Manager.
Now you can pilot a few users with the new 9.4/10 and when you are satisfied migrate the rest in batches. When everyone is migrated you can leave the 9.3 extension in place for historic reference.
1) Yes that is the normal procedure
2) Upgrade direct from 9.3 P6 to 10.
3) Reports and queries are not migrated. They'll still be there for 9.3 but you'll have to start afresh with 9.4/10.