"When I use Rotate 90 on a selection, the selection becomes a square."
The selection area is extended by Rotate 90 so that you can clearly see where the selection will be placed by each click of the Rotate 90 icon. The stitches in the selection area are not changed.
"Nothing seems to happen sometimes when I use Undo after using Erase."
Each time you click with Erase, this is recorded as an action you can Undo. If you click in blank space, or you miss the item you are trying to Erase, the action is still recorded for Undo. Hence, when you Undo, the Erase action is undone, even though it seemed to have no effect on the design.