Here's what a video page looked like back in 2003:

Early on yeah, they replaced it with the thumbs up/down system since most star ratings were 1 or 5.

They used to, and they currently do too, but the current one isn't meant to be an alternative to the like/dislike button like this portrays.

It's most often in your feed, where occasionally it'll show a video to you, then give you a tiny light blue box beneath it saying "how good of a recommendation is this" or something along those lines, then you rate it so they can both make the algorithm better overall, and fine-tune yours even if you don't want to watch the video. (e.g. I might say "5 stars, this is a good recommendation," but never watch it just because I don't have the time. YouTube knows I like that topic now, just that I might not watch videos that are that long.)

Eons ago, yes. It initially bothered me when they replaced it with thumbs up/down since I couldn't rank things with nuance.