1. Yes. The "pre" is the microphone preamplifier that boosts the small mic voltage level to a usable level for the rest of the gear. This is usually controlled by a knob/pot on the front of most mic pres/interfaces.
2. A pad is an attenuation device. Usually around 10 dB but varies depending on if it is built into a mic or pre. If it is a 10 dB pad, it drops the signal by 10 dB. Helps for really loud and/or transient sources.
2a. Compressor is a gain reduction unit. There is another discussion about this going on right now...(I think it's "compression is confusing") It basically reduces the overall dynamic range of the source. It is controlled by Ratios. If you have a 4:1 ratio, for every 4 dB that comes in, the comp only lets 1 dB out. So if you started with an overall dynamic range of 100 dB, it is now limited to 25 dB. Even though a comp reduces gain, many times it makes things seem louder because your "louds" and "softs" are closer together due to a smaller dynamic range.
3. It's fine. Depends on your budget really. SM7 seems to be the holy grail mic around here for vocals, especially rap. Grace is a nice, upper end pre. Classical folks like them too. Very clean...not much color. Your choice of compressor could definitely affect the sound too.
4. Better is relative. The grass is always greener.... If you're just starting out and have a Grace pre with a SM7 and a decent comp...just get to work. You'll find out what you like and what you don't...then sell something and get a different pre/comp/mic/whatever to fit your taste. If you like the Grace, get the m201, even though it's a bit of a price jump.