1: I believe you're talking about the "Flower Memory" equips, a new mechanic that replaces the old equip-able abilities (stuff like 20+/20- Speed, Health regen bonus, Focus enemy attacks, etc.)
2: The level cap is 80 when a knight is fully bloomed, though they can be upgraded to LV 100 when given a Centy fairy, earned by trading rainbow medals or crafting with 100 of those dragon-fairy-things, which are earned in numerable trades.