"Does OneSwarm automatically upload user files when it is run?"
OneSwarm will automatically start uploading your "shared" files if they are requested by peers.
"Does it take all the downloaded files in the designated download folder and share it with people?"
Yes, all your "downloaded" files are automatically shared. But you can unshare them.
"Will it share my private images and documents if they are inadvertently in the default "download folder" when OneSwarm is installed?"
No, it will not, except if you specifically set your "download folder" as a "watch directory"
"How do I know what I am sharing with people?"
You only share files or directories that you specifically designated as shared.
"Why is my Upload/Download meter showing internet activity if I am not downloading or uploading anything, is it updating friend file lists???"
Even if you are not uploading/downloading data, your OneSwarm client will still participate in the network by relaying data between other peers. This is part of the OneSwarm concept, and this help protecting other peers privacy.