1) Byron was adopted by Frank and Wendy. Their biological daughter, Sharol, had a daughter herself who is Avalon. Byron being adopted is significant to the story because his real father impacts the story. If it's not your thing, that's fine.
2) The guest room is already Avalon's room because it was hers when she was a baby. The house Byron is living in was Avalon's father's house before he passed away. Johnny, Avalon's father, left the house to his wife, Sharol, when he passed but she gave it to Byron when she found it too difficult to live in due to the memories of her husband. It's all explained organically through the story.
3) This is my first visual novel and yes, the dialogue does improve. But Byron is a bit goofy and if that's not your sense of humor, I've listed some recommendations of other games you might find more enjoyable below.
4) Yep, just like every other visual novel, there are choices that don't actually do anything. I'm just more forward about the fact that they're just flavor text. There are four paths in Avalon that are significantly different from one another and you'll have to experience all of them to get 100% of the sex scenes.
I really don't think you'll enjoy Avalon. It sounds like you'd enjoy work from a developer with a little more experience. I'm still in the early stages and I've got a long way to go. I know Love of Magic is supposed to be really good with a lot more choices and even a gameplay element. Light of My Life has more choices and the dialogue flows better. The Headmaster is a great sandbox-style visual novel with lots of sexual encounters but it uses Honey Select instead of Daz3D.
I certainly want you to have a good experience in this niche of AVNs, even if it isn't with Avalon. Sorry to hear your experience here was less than desirable. Perhaps check back when I start my next visual novel. Thank you for giving it a chance!