Advanced inventory lets you assign and monitor stock levels by product option (e.g. color, size, etc.). You can learn all about it in this tutorial video (login required).
No. Our research and experience tells us that shoppers like to choose products, not options (especially not options that cost them more). Imagine you sell necklaces in silver and gold that cost $100 and $125, respectively. You’ll always sell more of both if you list them as two distinct products than if you list them as one product with two options, one of which costs the shopper an extra $25. It’s psychological. Which means I can’t explain it, but it’s true.