1.) If you're using PowerPress, just upload the image to your WordPress site and copy/paste the URL into the PowerPress settings. You don't also need to upload the image file directly to the Blubrry website.
2.) When you say "set the tags," i'm not entirely sure what you mean. Once you have the image properly added into your PowerPress settings for the podcast RSS feed, you're done. You don't need to do anything else there. However, if you'd like images to go along with your WordPress posts, you'll still need to add those manually to your posts.
3.) If you want to use the same image for every episode, leave the iTunes Episode Image box unchecked. But do make sure you embed the image into your media files by editing their ID3 tags inside the iTunes desktop application or another ID3 tag editor.
4.) For the RSS2 image, you can use the same exact image as iTunes. You really don't need to worry about resizing the image for RSS2. Even if there's a suggestion to do that, there's really no issue with just using the 1400x1400 iTunes artwork.
5.) Just copy/paste the same URL for the iTunes artwork you uploaded.
6.) If you're properly editing your ID3 tags in a desktop application such as iTunes, you can ignore this. But, if you want to use this feature, you can use the same URL for your artwork as the iTunes artwork you've already uploaded.