It works on clothing in two ways...

First, you can use the clothing pz2's to apply the magnets to match the morphs you're creating in a figure.

Second, you can apply the magnets to clothing as if they were a figure, so long as they have standard body part names, and morph just the clothing.

You asked if the V4/V3 figure will work...absolutely.  Any figure with standard body part names, even animals (though not all parts in animals, like tail and wings)

Hence the name..."Universal"  :)

-WTB/Greg