I bought the game during the Steam Summer Sale and haven't gotten to it yet and want to start playing it this weekend. I read you can set your 2nd character on AI or that you can control his/her dialogue. Are there any advantages / disadvantages to this choice?
The choices you make in the game give you small statistical bonuses. The AI will make those choices for you if you give it a personality. This is only important if you are trying to min/max certain attributes (such as your whoever has charisma getting Pragmatic and Considerate).
If I pick "Lone Wolf" will I play the campaign with only 1 character? And is it even remotely possible to play this game with only 1 character?
There are four character slots in the game. Lone Wolf reduces the number of slots by 1. So one of your characters could have Lone Wolf, and you could still hire a single NPC. If both your characters have Lone Wolf, you cannot hire any NPCs.
And yes, it is possible to play the game with a single character. Just kill your other character off the moment you start the game. I recommend an Air/Water Mage.