Yes, this is legal under FileMaker software agreement. (Apple is Filemakers Parent Company)
Yes, users can see live updated data. Same as if you were connect with a computer, except iPads are slower.
If you don't get over 9 concurrent users, you will not need filemaker server and will be fine with filemaker hosting the database.
You will have some extra setup to access the database from outside the local network. You can take a look at this post about setting up access from outside network (internet). http://forums.filemaker.com/posts/7f8c968757?lang=en_US