1) there is an option for the host. either the spectators don't influence the game, or the game needs to wait for the spectators.
Most hosts use the first option. If there is the other option, any spectator can cause a lot of lag for the game.
2) I believe it does. huge distances will result in a bigger delay for exchange of data, so there will be extra network lag.
By the way, network lag isn't the same as performance lag. For example, a 1vs1 between a strong European computer and a strong Australian computer can still be much less "laggy" than a 1vs1 between two very slow European computers.