To answer all you questions at once. Almost anything can be done in brawl. XD
But to answer just those questions.
1) Models are made up of several polygon. Each polygon follows a series of points called vertices. It's essentially a 3D version of connect the dots. Using the programs 3DS Max and Anim8or those points can be moved to alter a polygon, thus altering the way a character looks. Some of the well known ones are Cloud Strife over Ike and Spongebob over Metaknight. Being that altering these points applies to a single texture, it's possible to have every texture slot be replaced by a completely different looking model. The moveset stays the same though.
2) Certain Wii games use the same model format that Brawl does. Using Wiiscrubber, BrawlBox, Hex Editor, various extractors and some auto-hex programs, 3D models from other games can be imported into Brawl. Imported characters need custom animations so there are no completed projects yet. However areas in other games can be imported and turned into stages.
3) There has been a lot in this past year.
Jack kindly provided showcases and tutorials here.
http://www.youtube.com/user/kittycorpmeowmixAnd WackaAlpaca provides tutorials and links to downloads need.
http://www.youtube.com/user/WackaAlpaca