For JPEG photos, Duplifinder compares the image data (not the "metadata" such as the date taken, aperture, etc that the camera puts in the JPEG). For other file types, Duplifinder compares the entire file. The image data in the 2 photos have to be identical, otherwise they won't be seen as duplicates.
So, for example, if you exported a photo in a smaller size at some point and then imported that smaller-size version into iPhoto at some point, those 2 items won't be detected as duplicates, even though they look identical. Duplifinder doesn't have any image-analysis logic in it -- it just sees if the image data in 2 photos are identical.
No. It will only find duplicate photos if the images are identical.