Hey Darius
Sorry you missed the deadline, now to help you out with your questions.
1. If you want the scholarship you still need to apply eventhough the Uni is Tuition free, because the scholarship includes living expenses.
2. You have to probe you´re a good candidate this is why you apply to the scholarship first, so yes technically you can get the scholarship but can get rejected from school. Which wouldn´t make that much sense since getting a scholarship is way harder than getting into an Uni, so in their logic if you win the scholarship is almost guaranteed you will get accepted.
3. It´s not based on Income, you can be rich and if you have excellent GPA and al the requisites they ask for you´re eligible for a scholarship
4. You can still get into school (depending on the deadlines of each program), you can´t get a DAAD scholarship at least not for the next academic year. you can always apply for the scholarship next year but that would be for the 2020 - 2021.
hope this info helps