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Re: xbox 360
1) Don't know. I've got both of mine set to auto sign-in, and not had any issues like that. Auto sign-in on the One requires Kinect, though, and sometimes it doesn't do it straight away.
2) I'd assume it's a recovery address, so if you lose the password for your Microsoft account, or lose access the the email address used for it, you can get a password reset link sent to another email address.
It's also definitely worth setting up 2-step verification on your Microsoft account (and Google, and Apple, anything else that supports it). 2-step uses a mobile app (e.g. Google Authenticator, available for iOS and Android) to generate a one-time code that you enter after you have entered your password. It means that if your account password is ever compromised, your account is still protected because the attacker would also need to have your phone, so you can still keep control of it and change your password before it gets hijacked.
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