1) The CPU doesn't shut off; the percentage refers to the lowest % of CPU frequency available. Modern CPUs have the ability downclock (run at a slower speed when idle) though they don't actually go as far down as 5% of their rated clock speed. If a CPU is rated 3.2 GHz, for example, it doesn't run at that speed all the time, to save power (battery life in a mobile device) when not needed. It may idle at 1.2 GHz (just a number off the top of my head, not referring to any particular chip)
2) The active/passive states refer to running the CPU fan. Passive doesn't mean the fan never spins but it runs less often.
3) The counterpoint to #1. Max CPU state means top speed (automatically 100%). Setting a lower percentage here lowers maximum performance but should save some power.