1. Priority indicates which tiles are closer to the "front". Roofs and treetops usually have a higher priority (and you'll notice are set to "passable") - which makes it possible for the PC to walk over those squares, but look like they're walking BEHIND them!
2. Bush flags are used for long grass (and I suppose possibly water if you want to allow the PC to walk through shallow water) - find a tileset that has long grass (001 - Grassland will do) and put some down. Notice when you walk over it the PC's feet are slightly transparent - so it looks like they're walking in long grass.
3. Counter flags allow you to interact with objects/people that are a full square away from you as if they WEREN'T a full square away from you. Normally you'd have to be standing on the square right next to a NPC and press the action button to interact with them. Having something with a counter flag set to 1 between you and the NPC will allow you to interact with them using the action button.
4. sorry - I'm still a little confused about them myself. From what I can tell, you have to SET the terrain tags yourself rather than relying on preset values like you do with all the other flags. Then you can query the tag in your events.