React Compiler(originally react-forget) is a build-time tool that automatically optimizes your React app by automatically memoizing your code. It only replaces the manual ceremony of useMemo, useCallback, and React.memo with automatic caching at compile time. So, it's fixing the problem they introduced by React itself or you we can call it a "trade-off" in a sense

You can and you can't. There's still plenty of very popular libraries that don't behave correctly with it. That's more on the libraries than on the compiler but that's the current state of things.

Yeah afaik React Compiler doesn't really replace virtual DOM.