What are the differences between “Latest Posts” and “Static Page”?

WordPress has an option to pick “Latest Posts” and “Static Page” under “Settings” in Admin Panel. My questions:

1. What page template is getting loaded in each of those modes?
2. Why paged stops working and page starts working when I select “Static Page” – paged works, however, when I create new page template with new WP Query and page doesn’t work (this is about WP Query – I think that everyone knows what I’m talking about – it’s pagination).
3. It looks like get_post_meta($post->ID, "my_custom_field_name", true) stops working when I select custom page template as “Static Page” but the same thing works when I use it via standard “View Page” in Admin Panel (I haven’t tried global $post, yet).
4. I think that all my above questions are related to what gets inside $wp_query and $post in each of those modes.

I just don’t get these two options 🙂 Can someone provide me some guidance or resources where I could find out more about it?

Conditional Tags

• The is_front_page() Conditional Tag returns true if you’re on the Front Page (index.php as fallback or front-page.php).
• The is_home() Conditional Tag returns true if you’re on the Front Page, when you got no static page set as front page, or when you got a static front page and display the Posts Page (home.php or index.php as fallback).
• If you got no static front page set under “Settings > Reading”, then both is_front_page() and is_home() will return true for home.php, front-page.php and index.php.

Options

• If you got a static front page, then get_option( 'show_on_front' ); has the value page.
• To retrieve the ID for the Front page, you can call get_page( get_option('page_on_front') ).
• To retrieve the link to the Front page, you can call get_permalink( get_option('page_on_front') ).
• To retrieve the ID for the Posts page, you can call get_page( get_option('page_for_posts') ).
• To retrieve the link to the Posts page, you can call get_permalink( get_option('page_for_posts') ).
• If you have a child theme, then home.php will not act as fallback for front-page.php.
• To retrieve custom values from the Front page, you can call get_post_custom('page_on_front') ).
• To retrieve custom values from the Posts page, you can call get_post_custom('page_for_posts') ).

… the list of AAARGH!!s goes on and on.

especially when user tries to set custom template as “Static Page” – pagination stops working unless I use page and custom fields stop working unless I create new WP Query.

^{From a comment of the OP to another answer}

As you can see in this diagram, it’s not that easy to get around what to use where. The problem is that there’re functions that intercept the main $wp_query object, others that copy over the contents of the $wp_the_query object, etc. And than there’re those that only work with the main $wp_query object. I know this is no full answer to your pagination question, but this also has never been the question. 🙂