It sounds like the system is suffering from 'blocking'. All five of your questions will get answered somewhere along this answer.
Blocking is said to occur when the reception of a wanted signal is disrupted by a strong unwanted signal at a different frequency (far enough away to be removed by the channel filter) although the weak signal would be quite strong enough to be received without error by itself. (If the interferer is close enough in frequency to go through the channel filter, we call it adjacent-channel or co-channel interference).
As in all things communication, there are two ways to look at it, the time domain and the frequency domain. Both treatments will give the same answer if done consistently, but often one or the other will be easier to hand-wave with. Use whichever approach suits your style best.
Consider a receiver system comprising a wide filter, an amplifier, followed by a narrow filter. For the purposes of this illustration, 'wide' means passes the interferer, and 'narrow' means removes the interferer. This is typical of a part of most systems. Depending on which parts are analogue and which digital, the 'amplifier' could comprise one or more amplifiers and an ADC. In a radio system, it will also comprise several stages of frequency conversion through mixers. The important point is that it carries both wanted and interferer signals. There is a difference in that the digital parts will clip or saturate 'harder' than analogue parts, but the general behaviour is the same.
We will look at the signal at the input to the narrow filter.
In the time domain, consider the reception of the small signal only, in the presence of a small out-of-band signal. At all points in time, both signals are present in the system, both signals are amplified all the time. The signal-to-noise, or signal-to-interferer ratio stays the same as at the input. When you eventually pass through the narrow filter, your signal is still there.
Now consider that the interferer signal is much larger, and some part of the amplifier saturates, or clips, for 50% of the time. While it is clipped, there is zero amplification of the wanted signal, we have lost half of our signal power. But it gets worse. Clipping an amplifier this hard may disturb the amplifier bias conditions, so that even when the output signal returns to the valid range, the amplifier still doesn't immediately start amplifying the small signal again. One way or another, we rapidly lose wanted signal power as the interferer takes the amplifier into saturation.
In the frequency domain, a saturated amplifier becomes a multiplier. Signals that previously passed through the amplifier without disturbing each other now alter each others frequencies, by generating sum and difference terms. Signal power is thrown out to other frequencies. Noise power may be thrown into the wanted signal band. The effect is to reduce the signal-to-noise ratio of the wanted signal.
There are two obvious ways to reduce susceptibility to blocking. One is to make the amplifier tolerate a larger signal before overload. The other is to add a linear filter (that does not distort or clip) at the front of the system to attenuate the blocker. Ultimately though, the design of this filter will be wider than the channel filter, and you will have parts of the system subject to the interferer signal. If the filter can be a passive physical filter before the first transducer, say a Helmholtz arrangement of cavities for audio before the microphone, or an IR filter for optical, then so much the better.
A more subtle way to reduce susceptibility to blocking may be available through the signal design, and channel coding. Reduction of the information bandwidth in a way that can be recovered by signal processing, for instance signal spreading and/or forward error correction, can make the receiver much more tolerant to poor signal-to-noise ratio. However, it's better to prevent the damage being done to the signal in the first place, rather than trying to dig it out of the dirt later.