1) Green particles moves randomly on the world, blue particles wants to go always to your location. Both particles uses physics for the movement, that is why the movement looks smooth instead just moving to your position in a line. Both behaviors are really simple, no mouse tracking.
2) As you can see, the game is a bit incomplete, that is one of the reasons you can "jump" over the enemies, I am just updating the player position with the mouse position in each frame, not performing a smooth movement between the last position and the new position of the mouse. The result is you can cheat in that way, luckily, not always.
3) Particles are spawned always with some distance to the player, however, as they spawn from invisible to visible, you can move the mouse after a particle is starting to spawn and it feels like it spawned over you. I agree with the "see death approaching", maybe all particles should appear from outside the screen always or at least make bigger effect when they spawn, even before spawning.
Thanks for playing and for the comments