Most common use case for VPN service like nordVPN is anonymous browsing/streaming on internet. People wanted to hide behind VPN services to be anonymous.
Considering this common use case to answer your questions.
Q1: The VPN service will use its own ISP to surf the internet while you use your ISP to connect to the VPN servers (secure tunnel between your device and VPN servers). The VPN service provider will have several servers deployed across countries to provide faster/anonymous nature of service. For example the ‘nordvpn’ service provider has 4477 servers in 62 countries (Refer: https://nordvpn.com/servers/).
Q2: Yes, VPN service provider uses his own DNS and IP address to surf internet and this ensure your anonymity in the world. If you are using your ISP’s DNS you may loose the purpose of anonymity and your ISP can track your surfing.
Hope this clarifies your concerns…