#1, if they collect sales tax on the adv bill, then it can only be applied against the future sales tax. So, their regular invoice must have a sales tax amount matching the tax code as the adv bill in order to fully apply the tax amount collected on the AB to the regular client invoice.
If they simply included all as part of sales on the AB, then that amount can be applied against sales or tax on the regular invoice.
#2, Close will create a regular client invoice and apply the AB against it. Create Credit will create a regular client invoice to apply against it and create a credit memo based on the unapplied amount of the AB. The credit memo can then be applied against future invoices.