You can be faster if you learn your own braking points, turn in points, apexes, and so on rather than following the blue/red line. Finding the rhythm of a track on your own is also important.
No, but I sometimes use the "natural" race lines i.e black rubber marks at the corners to judge my cornering.
I use it on track creator tracks, because I find that they tend to come out being far too all over the place to get in the groove with them. Other than those (and the Nurburgring), I leave it on but usually just ignore it.
This. Many people who turn the driving line on get hooked on following the line perfectly and eventually they block out everything that's happening around them including other drivers just for the sake of staying on the line all the time. That is the reason why people, along with the reason of already knowning a better line around the corners tend to not drive with the racing line on.I actually stopped using it after Prologue. Eventually got faster with it off, and it feels rather odd to ever turn it on again. I don't consider myself above the persons who do use it though.
It's reccomended that you don't use it too much during wheel to wheel racing, because your racecraft may be negatively affected by your attempt to always follow the line. You will find yourself not leaving any room for drivers attacking or defending.
I used the line when I first got GT5. I would never drive without it. After a good amount of play time I became more comfortable with the tracks. I find that the gear recommendations are much better then the driving line.