1) In order for an edged attack to sever a body part, the contact area and penetration depth must both be above an (unknown) threshold set by the monster's size and the body part's relsize.
If the penetration depth isn't enough to penetrate all of a creature's tissue layers, the attack switches to bludgeoning to damage the remaining layers. This is why you can make high-priority "BLUNT" attacks by setting the penetration depth of an edged attack to 0.
Larger contact areas distribute the force from an impact over a larger area. This is part of the reason whips are so deadly, their small contact area and high velocity modifiers deliver a lot of force.
2) I don't think there IS as strong difference between piercing and slashing.
Both values being high is the default for slashing weapons (axes are EDGE:40000:6000, spears increase piercing to 10000. A longsword slash is 60000:6000, while a stab is actually LESS penetrating, at 50:3000).
Both low makes a semi-bludgeoning weapon, with some light skin damage, as noted above.
3) ATTACK_VELOCITY_MODIFIER. It is believed to be percent based, ie [ATTACK_VELOCITY_MODIFIER:200] is twice as damaging as normal.
Adding ATTACK_FLAG_CANLATCH to an edged attack also increases the power of a creature, unless the creature is smaller than dwarves, in which case higher velocity attacks are better.
Use the PHYS_ATT_RANGE to up strength, agility, etc.
Use NATURAL_SKILL to boost the creature's combat skills (only works if the creature can learn).