You could be, if your mods folder is in [HDD:]\ModOrganizer\Mods then yes, you might have reduced performance.
I keep my MO folder on my SSD and told it to keep the Downloads on my HDD. I believe this can be done through the settings but I just changed the path in ModOrganizer.ini
You can either Merge or Rename, in the above case, Dual Sheath Redux is much more likely to be updated than the addon for elemental staffs, so by installing elemental staffs in it's own folder, you can update DSR and not have to remember to also reinstall all of the addons.
You can add extra mods to the end of the list, yes. There might be some rare situations where you want one of step's mods to override some of the files in mods you are installing as extras, and it is safe to do so (usually), but this would mostly be up to you to decide. And hey, you can always move it back if it doesn't fit :)
