Given that TABLE_1.KEY is unique you might consider using that as the index to your associative arrays. That way you can delete from the collections using the KEY value, which according to the pseudocode is available when doing the deletions. This would also save you having to iterate through the table to find the KEY you want, as the KEY would be the index - so your "deletion" pseudo-code would become:
tbl1_u.delete(key);
To answer your questions:
Since you're using associative arrays, when an element is deleted there is no "empty" space in the collection. The indexes for the elements, however, don't actually change. Therefore you need to use the collection.PRIOR and collection.NEXT methods to loop through the collection. But again, if you use the KEY value as the index you may not need to loop through the collections at all.
You can pass a TABLE_1%ROWTYPE as a parameter to a PL/SQL procedure or function.
You might want to consider using a MERGE statement which could handle doing the inserts and updates in one step. This might allow you to maintain only a single collection. Might be worth looking in to.
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