1) In MS-DOS, several special "device files" were available to aid in performing certain tasks, such as clearing the screen or deleting extraneous output from a program. In order to maintain backwards-compatibility, all versions of Windows up to and including Windows 7 will refuse to allow you to create a file with these "reserved" device file names. The following file names are reserved:
CON
PRN
AUX
NUL
COM1
COM2
COM3
COM4
COM5
COM6
COM7
COM8
COM9
LPT1
LPT2
LPT3
LPT4
LPT5
LPT6
LPT7
LPT8
LPT9
CON, incidentally, was a device file used to capture whatever was printed onscreen.
2) Yes its quite a neat little feature. Its used to test word documents, as filler text and also to test fonts.
The first number is the amount of lines, and the second the amount of times the sentence is printed per line.
The sentence "The quick brown fox jumps over the lazy dog" is a sentence that contains all 26 letters of the roman alphabet. As such, it's a convenient test phrase when testing things like fonts and markup.
It was programmed in there by Microsoft for test text. Its similar to a "macro".
3) It is a coincidence