RE: use fat not muscle
I couldn't tell you the exact mechanisms but I will give my views on your last question.
To make sure your body uses the highest proportion of fat during cardio you need to do your cardio at a low intensity. Your body will use mostly fat and no muscle really.
However, I don't believe burning fat DURING the exercise is that important. More important is how many calories you burn in total as a result of that session. With higher intensity cardio (such as HIIT) you will burn calories quicker but most importantly you will get a greater EPOC effect. This means your metabolism will be elevated for hours after your session, burning off even more calories. It doesn't matter that you will burn more carbs during the exercise session, ultimately your body will burn the fat in response to the caloric deficit you create.
However if you perform high intensity cardio in a glycogen depleted state you do risk using some muscle protein as fuel, so I don;t recommend it. However James and others on here recommend taking in a whey protein shake before training to stop this happening. How effective this is I don't know, and James would have to tell you the mechanism by which this works.