Answer 1

Java is used in small and medium websites. The crucial point is that there is much less free web hosting for Java websites than for e.g. PHP, meaning that unless you have enough resources to host your own web server you will probably not choose Java.
Note that with Java EE 6, especially the web profile, there is a lot of standard technologies included that can create very powerful web applications without having to code much. It is unfortunately not mainstream quite yet.
Note that this has changed somewhat recently with the Google Application Engine which allow you to deploy standard Java web applications (with a few restrictions) in the cloud for free for low to medium traffic sites.