Answer to Question 1
In any process, no energy is ever lost (it is always conserved). Rather, energy becomes less useful - it can do less useful work. As time goes on, energy is degraded, in a sense; it goes from more orderly forms (such as mechanical) eventually to the least orderly form, internal, or thermal energy. Entropy is a factor here because the amount of energy that becomes unavailable to do work is proportional to the change in entropy during any process.
Answer to Question 2
TRUE