(1) What kinds of applications are low clock speeds (e.g., 1 Mhz or lower) advantageous for? Or is the datasheet listing them just for theoretical reference?
Battery-powered applications, cases where you don't have fast interactions with other devices (temperatures for example don't change quickly so it makes zero sense to read it 1 million times a second), etc.
(2) What exactly is counted as "Idle" (versus Active) when the microcontroller is running my code? The table you see above also infers that there is a sizable reduction in the supply current in the Idle condition vs. Active condition.
Modern mcus have extensive power management capabilities, built around routing clocks to peripherals / core / ram / oscillators. Because of that, you actually have different "kinds" of sleeps - with varying degrees of activity / inactivity for certain parts of the chip. Idle, as defined by Atmel, is the deepest types of sleeps for AVR, where pretty much any clock is turned off, other than CPU / Flash - so it can still run code. The most "active" sleep in the Atmel world is called "Power down".
Check the datasheet for sure.