1) When the central bank increases the reserve rate, banks have to keep a higher proportion of their deposits as reserves. So the money supply reduces, when the supply of any commodity goes down, its price increases, in this case, the interest rate increases. Vice Versa for a decrease. As the central bank prints more and more money, the "value" of that money goes down.
2) I don't think you understand. Fractional reserve banking is a system by which banks work. it is not a type of account. Banks operate on the principle of
Law of large numbers - Wikipedia, the free encyclopedia ie everyone will not want to withdraw money at the same time.
Taking the example that kickass quoted, if the reserve ratio is 10% and for simplicity there is only one bank in the country, and say someone deposits 100 Rs. in a bank, the bank is OBLIGATED to have 10Rs. either as cash or government bonds etc. as reserves with the central bank(CRR and SLR; no need to get into the details). If it wants, it can keep the entire 100Rs. but there is no incentive to do so. So the bank lends the rest of the 90 Rs, this 90 Rupees is ultimately paid to someone(say you take a loan and give it to a car company) who again deposits it in that bank. The bank now has deposits worth 190Rs in total so it has to keep 19Rs. as deposits and can lend 81Rs out and this process continues. If you are familiar with infinite geometric progressions, this would be one of the form : initial money*(1-reserve ratio) + initial money*(1-reserve ratio)^2 ..... which would add up to initial money * 1/reserve ratio which is 100* 1/0.1 = 1000 in our case. So the banks were able to "create" 1000 Rupees out of 100 Rupees. By creation, it doesn't mean that they printed money, these are just ledger entries. If all depositors in the process were to demand their money back simultaneously, the bank WOULD NOT have money to pay them back, but in an economy with millions of depositors, this is statistically impossible to happen.
I think this should answer 3 as well. Gold is no longer used a base for currency. Its all fiat money now:
Fiat money - Wikipedia, the free encyclopedia
Earlier, the gold standard was used as currency but after the Bretton Woods conference, the US dollar was pegged against gold and all other countries were asked to peg their currencies against the dollar with the promise that they could redeem that for gold any time. However, in 1971 this gold convertibility was dropped (Nixon Shock).