The +10% is to commerce, which then breaks up into science, culture,and gold depending on the position of the sliders. The +5% is to the gold left after the slider positions are taken into account.
I have no idea regarding the altering memories question.
The tile starts working as soon as you assign the citizen. The white circle indicates that you have assigned a citizen and he is working the tile. The cottage will take several turns to become a hamlet; but it will continue to work even though your city's growth is stagnant.
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