Atticus
Q1: Yes yes yes! I've wondered about this for bloody ages, my suspicion is that it is a "how the brain processes pictures" thing rather than a physics one. Visible light will not diffract much around an object (say your hand/building) - if it did then all shadows would have 'fuzzy' edges and effects like young's slits would have been discovered centuries before they were.
Partly it's physics with a little bit of biological weirdness.
The eye has evolved independently at least 6 times.
Basically what happens is that slowly photo receptors that merely can tell the difference between light and dark slowly evolve until they can see wave lengths that are more discrete thus black and white vision which most animals have, high order mammals however are slightly further along and have usually (but not always herd animals don't really require colour vision) acquired colour vision, this works in a very ingenious way the image that settles on your retina is inverted by your lense.
A simple lense will show how this happens. Imagine that each receptor is like a sort of quarternary bit, so that r,g,b and b/w bright dark are all registered by intensity by tiny discrete physical structure called cones and rods, you'll note that our peripheral vision is not actually anything to do with the lens, and is made up of the movement of our primary vision and a little brain magic trickery, this means that the peripheral vision is rather limited but because it is sub conscious it is very sensitive to motion so hunters for example often stare askew at areas to see if they can catch movement that their primary vision might miss, the primary areas have most sensitivity at either side of directly behind the lens with directly behind being a blind spot where the optical nerve meets the brain.
You'll also notice its possible to lose sight of objects that are right in front of you but then evolution is blind (pun not intended) and frankly the eye is a bit of a hit and miss patch job at best. In humans green is the most intense colour we see, for obvious evolutionary reasons, this also enables 3D because we tend to see red green and blue at different levels and hues and thus at different heights and depths (although this is an optical illusion the brain can use this to create depth) - along with binary vision which also has different depths because the eyes are slightly separated - this creates the illusion of 3D.
The actual way that the brain flips the inverted image and creates a pseudo 3D perceptual qualia as its called is the subject of Philosophy. The best article I've read on this mystery are by Daniel Dennett, and Hillary Putnam who have used multi-realisability (essentially there are many colours that make up red and we all see a version or tone of this) and issues of qualia, or qualities of experience to explain at least a philosophical framework of how we consciously see. See issues of consciousness for more details.
Optical illusions are all ways of fooling the brain due to its parameters being quite limited by evolutionary concerns, For example TV works because it exploits our RBG susceptable eyes. And optical illusions work because our brain makes certain things high priority and others less important, ie movement to periphery and acuity to the more important parts of the eye. So we can be fooled both by motional issues and by shade and tone issues which are created in the brain and have little to do with the eye. That said mirages are optical illusions that are caused before light reaches the eye so it's a fairly complicated area of biology and optics.
Things that are close up look different because of the cross eyed effect up to a certain point the eyes are focusing at slightly different distances creating the illusion in the brain of depth or 3D vision. But past a certain limit they become focused at a point when combined focus are incompatible with the distances, thus things look blurred and out of focus. Also things that are close up are more likely to be missed by our blind spot, thus the common missing what was right in front of you.