The strange black spots show up when the bump setting is
too high. They are actually tiny shadows. As far as how
much to apply, it just depends on the effect you are
trying to achieve.
I think displacement only needs to be checked when you are
using displacement maps. I think any paint program that is
capable of creating a jpeg in black and white and
shades of grey can be used to create both bump maps
and displacement maps. I use Paint Shop Pro because it
can do layers so I can use a template and paint over it
on another layer.