Hi Scott
Don't know if I can answer all your questions, but here goes:
The 'favorites' is very similar to the Custom Load Script on the Hard Drives and basically creates a short cut to the locations of whatever files you put in. For example there are 40 banks of favorites, each containing 9 slots. You could name bank 1 Country and then save 9 separate Country songs. The favorites can be used in several ways, but I find it most useful to set out the songs I'm going to play at the next gig in the first few banks and in the order I intend to play them. They can be edited easily and quickly and even changed on stage if you decide to.
I also often take requests at gigs, and use favorites to store the requested songs during the interval.
The favorite banks are not searchable, but the screen displays the folder names of 10 banks at a time, so it's easy to locate the bank you want.
Having said that favorites are not searchable, there is an alphabet search facility on the SD card itself,(as well as a Folder and Numerical search) which searches all the names of all the files held on the SD card. The alphabet search is case sensitive, so a search on c might list

composer Patterns 1
country Songs
country 2 step etc

whereas a search on C might list

Carpenters
Crazy
Crocodile Rock etc.

I'm not familiar with the Yamaha Music Finder Database, so I can't comment.
As favorites are simply a form of short cut to files held on the SD card I don't think they could be edited on a PC.

As a gigging musician I'm sure you could utilize the KN7000 features so that 'performance' is set up and ready at the touch of a button
John