yes, lowering your car reduces overall wind resistance and allows you to reach a higher top speed. some people say the downforce isn't exactly accurate, it is different in cornering than a real life car
i would assume the game just applies an overall resistance to the power output of the car, and a front and rear downforce to the traction of the wheels at those locations, rather than dynamically modelling the whole car in a wind tunnel thousands of times per second
you can bottom the car out on the suspension (and you hear a clunk), you can also scrape really low cars along the ground or ripple strips (and you will see sparks come off). this adversely affects your handling but unsettling the car like it would in real life. sometimes you come into a corner off a jump and your braking is totally stuffed up from the jump (laguna seca, nurburgring, capri city course) so you have to take the jump differently
whilst some aspects of gt4 physics are very realistic, it will be many years (if ever) before one can accurately totally model a real car on a home console. gt4 is realistic enough to be considered a very accurate game, or a less than perfect simulation, and seems to be copping alot of flak for it
you just need to remember, it's a $200 playstation with a $80 game, not a multi-million dollar supercomputer