Yes, you had to make a vertical correction manually, by moving your mouse up (to shoot longer, when the enemy moved away from you) or down (to shoot closer, when the enemy moved towards you).
I saw this sometimes, but I don’t understand this part to be honest. I always ignored it, because it didn’t make any sense. I suspect it was just a bug, but I’m not sure.
Just like in tanks, you had to point area you want your shell to land. It didn’t take into consideration enemy or your vertical movement at all.
In one of the major updates from the last year, they added the FCS interface (in the top-left corner of the screen), that was actually showing you if you shoot too far or too low. I never used this, because I preferred to observe where my shells land and the current enemy movement, but this was another way to see if you were shooting too far (and you had to move your mouse more down) or too short (and you had to move your mouse up).
The funny thing is, I still remember times when we didn’t have any aiming indicator. Both corrections (vertical and horizontal) you had to do manually, based on your skill and experience. These times were the most fun for me personally.
If you are talking about explanation of how things works, it’s usual Gaijin. You need to check the forum, wiki and official articles to understand everything. Most of the things in the game are not explained at all (not only in Naval, actually in all game modes).
For example, which part of the game explains how radar missiles work? You know how I learned it? By reading the forum, watching YouTube videos, asking other players and testing this myself (and dying like crazy). There are still many things I don’t understand, and there is nothing in the game to help me with this.