1) Using POP3 unencrypted opens you up to all sorts of exploits. Typically, you aren't going to be so concerned about someone intercepting your mail, or more importantly your login credentials, via the open internet. The folks who do this would have to have access to internet exchanges, ISP routers, . It can happen, but it's not that common.
What does happen frequently is the unencrypted credentials are observed over a local network, either by legitimate access to or hacking the router/switch, or observing WiFi traffic. For example, intrusion detection systems like snort are often configured by default to alert on this and show the administrator your username/password. In an environment with questionable privacy on their local network, e.g. a coffeeshop, or within a corporate environment.
Thus it is possible for a bad actor to eavesdrop on the mail stream, as well as simply recover your login/password and login as you. They can then try this password/username combination on other sites, or send password resets to other sites like Facebook and then sign into your e-mail for the reset. So, it exposes you to quite some area of vulnerability.
Note that SSL over POP3 (POP3S) encrypts not just the password exchange, but all the data therein to prevent snooping on what your mail contents are.
2) It is not. If you send out data unencrypted over the internet, it remains unencrypted end to end -- including within both end's local/perimeter networks before the packet reaches its internal destination. This means that anyone in between the route the packets take has access to the information contained within. SSL removes this vulnerability by applying a layer of encryption, so only the ends that are communicating may see the information.
The internet was not designed for security, it was designed for speed and resilience. Then, it became like the Wild West for hackers, so layers of security like SSL were added to help make it more secure. Without SSL or other encryption enabled, you're much more susceptible to attacks which are very old, well known and don't have to be very sophisticated.