I'm going to try to answer this from a mechanical perspective, detailing why a vehicle must/should be operated in a specific way. Before I start with the answer, I must explain that neutral isn't a gear but the absence of any gear. That is, the vehicle is "out of gear." In layman's terms, this allows the engine to spin freely without being connected to the wheels. If one were to attempt to stop without either dropping the transmission into neutral (#2 in your question) or sequentially downshifting then going into neutral just before stopping (#3 in your question), the engine would stall.
To slow to a complete stop the "textbook procedure" (according to the DMV in my state) is to slow down and downshift sequentially until to a crawl, at which point one would take the vehicle out of gear (into "neutral"). One reason not to rely on engine braking (downshifting) or braking alone is to not put excessive wear and tear on only one of the vehicle's components (especially on a downgrade). Another would be safety, by downshifting as opposed to coasting the vehicle is in gear and the driver is able to apply power to the wheels if need be in an emergency situation.
This also affects the point at which one should downshift when slowing/stopping. I like to downshift just before the tachometer (RPM gauge) is down to the point it rests when idling. When changing gears, the speed at which the wheels are turning will not match the speed at which the engine is turning, because of the different ratios of the new gears that have been selected. It does stress the engine, clutch, transmission, and other components (synchros especially) to shift when there is an extreme mismatch between the speeds of the wheels and the engine. So shifting into first at 70 MPH would cause bad things to happen, if you could even manage to get it into gear; the engine might rev up past the redline and severe internal damage might occur. I've heard people refer to these as "money shifts," because it will cost you a lot to repair the damage done.
One final note, most new automatic transmission cars have little computers in them that manage the shifting for you (early automatics used hydraulic pressures alone in the transmission to manage shifting). The computer's rev-limiter function knows the engine speed and will prevent you from ever being able to hit (or surpass) the redline, even going so far as to cut the flow of fuel to the engine.
This is my first answer here and I hope it helps you!