Hello princess
1. Your TRV qualifies for the residence requirement in Chile, but there are also other requirements (e.g., you must be a Canadian citizen - not a permanent resident). Click the link for further info. You would send your sponsorship application to Mississauga, ON. When you received approval, you would send that along with your husband's PR application to Santiago.
http://www.cic.gc.ca/english/information/applications/guides/3900E2.asp2. You have to show evidence that you will reside in Canada at the time your husband becomes a permanent resident of Canada. See the link above.
3. Yes, you can use the fillable form.
4. Yes. That would be a good idea.
5. The difference has to do with whether you can appeal the decision. If you check the first box, "To Withdraw Your Sponsorship," you will get your application fees back minus $75, and you won't be able to appeal the negative decision. If you check the second box, "To Proceed With The Application For Permanent Residence," they will keep your application fees and you'll have the right to appeal the negative decision.
6. If your husband's PR application is approved, he will have 1 year from the date of his medical exam to enter Canada.