When you are using s3 as a origin domain in Cloudfront ,You don't have to make your bucket & object public, just host a static website in s3 bucket without making the object public(as we don't want direct access to bucket , the request should be routed from CF)
Answer to your 1st...
It works like a normal policy attached to user. To verify if the attached inline policy working , you need to logon by the user & try to access the service for which the policy has been created.
Thanks & Regards
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