Yes, you capture at the full bit depth available to the camera, and also can adjust the capture LUT to shift the bits to where they are needed most.
For most people’s computers, then yes you would capture to a 16bit TIFF sequence, or to an uncompressed 16bit .avi file. There are some codecs that work realtime if your system is fast enough if you want compressed images to save space, but for most people they would be capturing uncompressed. TIFFs are more demanding on disk speed and response than uncompressed AVI, but I prefer to capture to an image seqence rather than an AVI if the machine is up to it, as the TIFFs are usable without transcoding in a wider range of software packages.

Flashing the LED achieves a few things.

As mentioned, it freezes the film frame if using continuous motion, but even with an intermittent drive, flashing the LEDs freezes the image and stops any residual movement when the film is sitting in the gate, resulting in a sharper picture.
Heat. Flashing the LED means you don’t have to use heatsinks and cooling solutions, resulting in a more reliable and compact light source.
Colour. Using an array of RGB LEDs, you can adjust the colour mix by changing the individual flash duration of each colour. This lets you adjust the ‘white’ light to whatever mix is required for a particular film stock. For example, the faded THX 16mm print was restored to almost full colour just by changing the lighting during scanning. This results in better colour fidelity and more information captured.
Consistency. Changing the flash duration to control exposure gives you better consistency than driving the LEDs constantly and adjusting the power or using PWM to change the brightness.
Less flicker on capture than using PWM or other methods to adjust brightness as the light source is kept in phase with the camera trigger, and you are not getting brightness variance due to LED drivers.