When using the LDAP auth type the users will be created automatically by Bugzilla upon first login.
- Yes that's correct
- Yes, you should not have to give them a password or manually setup an account for them in bugzilla
- You should not manually create the user in Bugzilla. See here 3.2.2.4. Deleting Users and then try logging them in
One of the troubles I ran into is that the users must have a 'valid' (of form something@somewhere.somethingelse) email in the 'mail' field of the LDAP server.