As Jake and Debora have said, the topics are used to allocate papers to the most suitable reviewers.
I know of a technical committee that had received approximately 400 papers for their conference. They wished to have 3 reviewers to each paper for a total of 1200 reviews.
They printed off the 400 submissions, laid them out on a very large floor and proceeded to attach post-its with reviewer's names on them. They had choose the 3 most suitable reviewers for each paper and keep a tally to ensure that no reviewer was overloaded. The whole process took almost a day of back and forth, and there were still errors when they had finished.
An online system can make a first pass on the allocation in minutes, taking into account paper topics, reviewer area of expertise, no of reviews per submission, nepotism and other factors. The chair can then tweak the allocation before inviting the reviewers to get started.
In answer to part 3, some abstract/paper management systems* will allow a reviewer to view the abstract/paper and if they feel it is not in their area of expertise, they can notify the chair who may re-allocate it to another reviewer. (Even though this is a useful feature that should, we have found that some chairs elect not to turn it on, believing that it gives reviewers an easy opt-out
*Disclosure - I'm a co-founder at Ex Ordo, an online abstract management system that includes these features.