The simple answer is that no matter what "Base WIM" you choose for Rescue Media, i.e. WinRE or some version of WinPE, the most important element is to test boot that Rescue Media to make sure that a) you know how to boot from Rescue Media and it does so successfully, and b) Rescue can see all of the hardware it would need to see in order to perform a restore if needed. In your case, that would be your system's internal storage and then your USB-attached storage. If your WinRE-based Rescue Media works, then don't overcomplicate matters here. There's a reason that WinRE is the default choice. WinPE options are available mostly for cases where WinRE doesn't work as expected and/or for IT scenarios where somebody might need to build Rescue Media on some other Windows kernel for compatibility with other systems they'll need their Rescue Media to work with. (There are Reflect licenses that allow this sort of utilization.) I can go deeper here, but you've warned us that you're a newbie, so for now I'll leave it at what I've said thus far, along with, "This probably isn't something you need to worry about, so you might not want to go farther down this rabbit hole."
(I spent 15 years in various Windows IT roles.)
The pre-existence vs. downloading refers only to Reflect's ability to build Rescue Media. WinRE exists on your system, and therefore Rescue Media Builder can leverage those pre-existing files to build its Rescue Media "foundation". WinPE files have to be downloaded from Microsoft and then get cached on your system to allow future builds that rely on that base WIM. None of that directly pertains to disaster recovery, which requires you to have Rescue Media that you've already built. As long as you have that, you're golden. This discussion pertains to your system having the "ingredients" cached to build future Rescue Media.Rescue Media updating
In terms of how often to update, the red text guidance is good. If you're not interested in reading release notes, then I would update maybe every 3-6 months or so. In general, keeping somewhat current to avoid getting bitten by bugs that might have long since been fixed is better than the "if it ain't broke, don't fix it" mentality, especially if you're not regularly using Rescue Media and therefore might not encounter bugs until your system has failed and therefore updating Rescue Media would be trickier. I would however encourage you to retest Rescue Media after updating just to ensure that nothing has broken. Updates are generally for the better, but there have also been updates that break things, and if there's a problem, you want to find out sooner rather than later.Boot menu recovery
The boot menu recovery option gives you a way to access the Rescue Media environment by booting from files located on your internal storage, i.e. without having to go get your Rescue Media device. This can be handy in cases where your system hasn't completely failed (and thus the necessary files are still on your system to allow this boot choice), but you want to roll back to a prior backup for whatever reason. It can be especially handy for people who do a lot of application testing and therefore want to try installing something and then roll back their system shortly thereafter. However, it should never be considered a substitute for "external" Rescue Media, because of course there are all sorts of failure scenarios where the files on your internal storage that allow Rescue booting this way won't be available. In those cases, you'll need proper Rescue Media, which has no dependencies on anything existing on your internal storage at boot time. For that reason, "external" Rescue Media should be considered essential, and can also be your sole mechanism if you don't expect to need it very often. The boot menu option should be seen as an optional convenient alternative that will be available in many cases. As such, it can be your primary Rescue mechanism, but it should never be your sole mechanism. As to why you might NOT want to do it, some people just don't like adding extra stuff they don't expect to need.