What is "Cloning"?

In your first scenario, it could be both, but most commonly be number 2 .

For part 2, it's again, both, but definition 2 is probably more accurate.

 

Essentially, it's copying the complete data from one volume to another.

So it's pretty much everything you suggest. Cloning is copying from one disk to another; a clone is a copied data set from a volume.

 

Your second option you have there is cloning a USB drive back to a newly installed or already existing installed drive, the first you clone installed factory OS to external drive.

 

Back in the days of the "Classic" Mac OS, before OS X, all one had to do to make a "backup" of a boot drive was copy the entire contents of the drive (by hand) to another disk.

The OS was FAR less complicated, and there weren't "invisible" files (that under normal circumstances the finder can't see).

That all changed with OS X.

Now there are thousands and thousands of files, some visible, many invisible, with an entire hierarchy of "permissions" built on top of that.

So .... you can't simply do a "drag copy" of the OS from one volume to another any more. You need to use special techniques instead (such as the "ditto" command in UNIX, I believe, although I've never actually tried that).

To fill this void, a couple of nifty utility apps were created:
CarbonCopyCloner
and
SuperDuper!

Both work well at creating a "clone" of a Mac OS boot drive -- that is to say, a complete and nearly-exact copy that is bootable.
NOTE: I said nearly-exact because I believe there may be a few files that are deliberately omitted during the cloning process, for good reasons. But these files aren't noticeable to the naked eye...

If you've never done a clone before, and have a drive available (or a free partition), just try it. It won't hurt anything and you can erase it later if you don't want to keep it around.

BUT -- I would strongly advise you to keep at least one "bootable clone" around for emergencies. Almost every Mac user, sooner or later, has one of those "I can't boot" situations. When it happens, just connect your clone, and try again. You may be able to get back up and running in a couple of minutes, and can then focus on your main drive and attempt to rectify the problems...