In mouse mode, when you move the pen across the stylus, it moves the cursor depending on which way you move the pen.
In pen mode, the cursor moves to where ever you move the pen on the tablet.
I haven't heard any play in mouse mode, because that kinda' defeats the purpose of using a tablet instead of a mouse.
In mouse mode, it's dependent on how you feel. Some people like barely moving the mouse when they play, so they set the sensitivity really high, I myself like the accuracy of a lower sensitivity.
For pen mode, the sensitivity should always be set at x1.0, otherwise you can get some funky side-effects when playing.
About the size of the screen. I believe most people play in window mode when they play with a tablet, because the playing field on the tablet is a lot smaller, so you don't have to move your hand/arm as much, therefore not getting sore after played 3 or 4 songs. If you really like/want to play on full screen, set the active area on your tablet to about 3 to 5 inches, length-wise, if you don't want to tire yourself out to quickly.