3. They go through a panel to be peer-reviewed and compared to other proposals (similar to how grants are allocated by the government). I'm fairly certain this process also includes review by instrumentation experts. The process is double-blind and the first cycle has already been allocated: https://www.stsci.edu/jwst/science-execution/approved-progra....
They have a tool called APT that lets the researcher define the parameters of the experiment (target object, instrument settings, time, etc) and the software will find an open time slot which can meet those parameters. Then it goes through a double blind scientific review process. The researchers that worked on the telescope hardware get some amount of guaranteed time slots while the rest is used for general observers.