Welcome to our Forum, Griffin.
The vampire gnomes first start showing up if you have planted plasma fruit on your lot. I'm not sure what else will make them start appearing. And, yes, once you have one, it will turn any teddy bear that's left out into another gnome.
With Story Progression turned on, your town will stay populated at around the original number of Sims. Children will be born, grow up, get jobs, get married, have their own kids. You'll also find that families leave town and new families move in. A good way to know what's going on is to have your Sim read the newspaper every day. It will tell you some useless sports information, but it will also tell you who has been born, died, and moved into or out of town. Many players are able to keep their games going for many generations. There are some challenges that are specifically for multiple generations, specifically our Immortal Dynasty Challenge and our Townie DecaDynasty Challenge. I believe my highest multi-generational game went to 13 generations.