No. Ctrl+Z keeps working exactly as it always has, and the two run side by side. Undo History adds a second, persistent timeline on top of it. When you press Ctrl+Z, the add-on recognises the resulting state and simply moves its position on the bar instead of creating a duplicate entry.

Object, Sculpt, Edit, Vertex Paint, Weight Paint, Shader and Geometry Nodes.

Yes. Node values, links, colour ramps and curves are all captured, so deleting a node or tweaking a ramp creates a state you can come back to. Object and collection references inside nodes are restored too, and they survive renaming.

Going back never deletes anything on its own — you can always return to the most recent state. But if you make a new change while positioned in the past, the states that followed are replaced by your new branch. That is the only situation where states are lost.

You choose. In Circular mode, the default, the oldest states are discarded automatically to make room — segments disappear from the left of the bar while new ones appear on the right, and you never have to think about it. In Block New States, recording stops until you clear the history, and a warning appears next to the bar.

No. The history is written to a separate companion file next to your project, named yourfile.blend.uhistory, and reloaded automatically when you reopen it. Your .blend itself is untouched. You can turn this off per file, and set the default for new projects.