Hello noob, and welcome to Eight Forums.
i. What is the difference between options 2 & 3? i.e. I could save to a file on a USB drive
What Jack posted above. You can save the same recovery key to a USB flash drive, or a location you want as a file.
ii. Does option 2 mean the USB flash drive cannot then be used for other purposes?
Yes, you can still use the flash drive as usual. Just don't delete the recovery key .txt file, or move it from the root directory on the USB flash drive.
iii. Does option 2 also mean I could use a USB external hard drive, or does it have to be a flash drive?
It does need to be a USB flash drive to be detected by BitLocker.
iv. Once the recovery key has been created, can the key then be copied to other locations or is it only going to work where Bitlocker puts the key?
Yes, you can copy the recovery key .txt file to where you like. The recovery key .txt file saved to a USB flash drive is the same one as if you saved to a file.
v. Just thinking about printing the recovery key - can this be used without a password to access the drive, how sensitive/important is the printed key?
Printing the recovery key is just having the recovery key .txt file printed out as a hard copy on a sheet of paper to keep somewhere safe in case you lose the USB or file.
For more information, see also:
BitLocker Recovery Key - Back Up in Windows 8