Your user id is unlikely to be 1. You likely added the row number in the management display from the # column. Navigate to CB > User Management and you'll find your user id in the far right ID column.

Will the update handle conversion from nested >>> flat (categories/groups) in some magic way or should I go in and start making changes before going further (I'll certainly stop the creation of new nested!)

Yes, since the parent database column isn't used anymore and has no affect on the queries the categories and groups will just automatically become top level. Nested groups will become groups of the category their parent group is in automatically as well since the category id has been stored with them since their implementation. In short you don't need to do anything manually unless you want to adjust where they'll be more specifically.

We will not be a big user but we are just launching and so it will be good to know we won't have an unnecessary hiccup during the early stages of use.

I'm taking a great deal of time to ensure the migration goes smoothly as this is a rather large and well used plugin. Hopefully migration should go very well for everyone and in theory shouldn't have to do any further configuration after install.

Is there anyway to create a new tab within GJ like the ones that are there by default (about, event, photo, video, wall, etc.)

With API, yes.

As well, how can new public facing links be generated? In the old version it allowed the admin to create a frontend url. Will this feature be coming back?

Existing links will still work in RC (beta is missing this B/C) to an extent (will implement as much B/C as possible for them). New links can be created the same way CB 2.x plugin menus are created by creating a menu of type Community Builder > Plugin and selecting GJ (this is already implemented).