I really haven't played with story progression off completely to know the behavior or how it really works, but I've also heard that it doesn't stop everything from happening. I have only played with tweaking SP settings using NRaas' mod, so I'm not much help with telling you what to expect without it. Advancing carefully with lots of saves is a great idea. I do that whenever I'm doing something "delicate" or testing to see what things will do with different settings.
The residence thing is actually pretty simple, and I usually always have a second residence for my bigger families. Basically, you just use the phone to buy a second lot. Then in map view, it will have a different icon so you can tell it's one of your own. You can click on it and tell the sims to visit like visiting any other lot, or you can zoom in on the lot and click something for them to do there, and they'll go over on their own. The lot does not behave like a "public" one though--it behaves just like another part of your own lot, so you can edit it and do anything you want to it without editing the town.
As long as all of their needs are being met on the second residence lot, the sims won't go back to the "primary" lot. The exception is, as I mentioned, going home from somewhere else. They will go home to the primary lot, and if you want them living on the second lot, you just send them there again. If you have leftovers in your fridge, they will eat them on the second lot as well (very nice for meeting their needs), and you can jump between lots very easily (usually I just double click on a sim's portrait, and it jumps to the whichever lot they are on).
I have two purposes I frequently use my second lots for. My most common use is to make it a luxury-type lot and retire my elders there. They love hanging out in the hot tub and pool, playing lots of games, and generally taking care of themselves. However, they can't do anything too crazy and are readily available for me to bring home to babysit, clean up, or help out. My second most common use for the second lot is to have it a place where sims can focus on skills with less distractions. You can sell the second lot anytime you want, you just have to be sure you don't have something on it you want first (i.e., paintings, rewards, etc.).