1. What is the purpose of a microbevel? If your plane is 25 degrees and you make a microbevel a few degrees higher, why not just make the plane 28 degrees? The micro bevel makes honing faster. Rather than having to re-sharpen the entire bevel when it gets dull, you just need to hone the small section that is 28º. The extra 3º also adds some beef to the cutting edge. That's helpful, especially if you hollow grind the 25º bevel.
2. A few weeks ago I bought a Stanley sharpening set which includes oil, a jig, and oil stone.
I started sharpening my blade and then noticed that certain parts were getting a different look. This is when I realised that the shape of the stone was changing and that I need to keep the stone flat as well. What is the best(cheap!) method of keeping the stones flat? I flatten all my stones on fine grit drywall screen that sits on top of thick plate glass. Keep the stone flat, apply even pressure, and scrub it back and forth until it has a uniform surface. Flatten your stones often.
3. The higher the grit one uses for honing the blade, the sharper the blade gets? Click here for Chris Schwarz' detailed explanation about this.
4. I still don't understand the differences between diamond, water and oil stones. Does one need to keep all of these stones flat? Or is the diamond stone so hard, the shape never changes? Also if I spray water on an oil or oil on a water stone, what happens then? I will defer to other readers since I've only ever used waterstones (which must be kept flat).
5. I do get the blade at 25 degrees with my jig and sharpening stone, but it never really gets sharp. "Sharp" means that two surfaces meet so precisely, the edge disappears. If you see light reflecting off the cutting edge, your blade is not sharp. Is your jig/guide working well? It should not let your blade "rock" at all. Another thing to look for is little nicks along the edge--does it look jagged? Are you sharpening/honing with progressively finer stones? I flatten the back and establish the bevel on 1,000 grit and finish with 8,000. Other people add 4,000 grit in between those two. Ideally, you want a mirror finish on the back (approx. 1/2", not the entire back) and the bevel. Also, the cutting edge must be 90º to the sides. The problem might not be the blade, but your jack plane. Is the sole flat? If not, then even the sharpest blade won't be able to make your plane work well. See Chris Schwarz' post here.
6. Does the back of the blade need to be completely flat? I have seen some vids on youtube where they are putting a thin ruler under the blade while flattening the blade. I assume this changes the angle of the back slightly. This is debatable. I flatten the backs of all my irons--dead flat. If they're in bad shape, I start with an 80 grit diamond stone. I have never used the ruler trick, so cannot comment on its effectiveness.
7. I have only recently started using a jack plane. The Jack plane fell on the ground a few times and the shape of the blade changed and it lost it sharpness. Since then I have been trying to get a sharp blade without much success. If the blade is nicked or skewed, you'll need to regrind the cutting edge so that it is 90º to the sides of the blade. Some people put a slight camber on the blade's edge, but you still need to start with 90º. If your plane fell on the ground, it might also be damaged, so check the sole for flatness.
I'll add that until I took a class on sharpening, I was very confused (and I'm still learning new things). This is a deep subject with lots of choices, preferences, and strong opinions, but if you're looking for an inexpensive sharpening method, I recommend the Scary Sharp technique.
Let the debate begin!