Dual dialogues refers to conversations that can be had between the main characters after certain events (like the first fight in the game), which can determine their traits (see the trait tab in the inventory window) and relationship between the characters.
Yes, 'Close up dialog' zooms the camera in more for conversations. It is intended for mods (as the warning says if you enable it), since the main game was designed with limited zoom (a closer zoom doesn't always work well).
Dynamic camera determines if the camera follows the active character during combat.
Peace, combat and tactical highlights outline characters in the given situation. Hit B (Dpad Up with a controller) to switch to the overhead tactical view, to see how that works.
In co-op you can split up and go wherever you wish on the same map; you need to be together to move between map areas.
If one of you gets killed, the other will have to resurrect them. If you are not playing Lone Wolf characters, you will be able to recruit another 2 companions to join your party fairly shortly after getting to the main section of the first town, so you can each control 2 characters.
