In general, is the process one of using the demo store and slowly replacing the content with live content? Then removing the demo content?
I think it's up to you how to change the store content. If you prefer changing the demo data to yours, follow this way. If you like creating everything from the beginning, delete the demo data first.
For the catalog, should categories be created BEFORE an import file is created, or will the import file create the categories on the fly?
The import process creates categories on fly.