How exactly does the 4* cover vaulting in tokens work?

1) One at a time. Newest one comes in, oldest one goes out. There will only ever be the 12 newest in there. 

2) No. If it goes to the beginning of a season and no new 4s have been introduced, then it'll stay at the current 12.

3) I like to set one 4 as a favorite at any given time. Usually it's one I have at 11 or 12 covers. Once I get them champed, I favorite another. But it's up to you. Some people like to favorite ones that aren't in there just so they have a chance at pulling them. 

Well there's a bunch in there right now that will be there for a while and are pretty good, so you're in luck

Oh, also, in the case of a new 4*s featured PvP, the new 4* will be featured in that PVP token, along with the current 12. Those are pretty long odds, though.