[bend the light]

In ACR, when I open my CR2 file, I can select op[tions at the bottom to have the image as:

Adobe RGB,
8bit or 16bit,
size (from 1024x1256 @ 1.6Mp up to 4096x6144 @ 25.2Mp),
Resolution,
Sharpening (for screen, glossy, matt)

Does my camera capture 16 bit? Should I then have this set as 16 bit?
And secondly, if I change the size setting, what effect will that have on quality? Obviously reducing the size will degrade quality as I will throw away pixels (I assume), but what about increasing it? Is there any reason to change this size up (to 4096x6144 at 25.2Mp) or am I also introducing problems. I assume I am adding (interpolating) pixels?

Does anyone sharpen at this point, with these controls?

It just seems silly to me, that if these are changed and that degrades the image, why have them? The program can still deal with any input, but there'd be no need to change those settings.

Cheers