It is grease. Like a stick of butter it can be vicious and creep into crevices and it is also quite solid when cold. This is why it is best to apply when it's warm out (80°+ out). Mud won't really stick to it but sand readily will. It is very nice that you can stick the tip of your spray gun in the many holes in the frame and even do the inside. Wrap newspaper loosely around exhaust system. Wear junk clothes when spraying.
Oxidizing or rust of steel is caused by oxygen reacting with iron. Grease or any other coating prevents the oxygen from getting to the metal. The more expensive coating have great durability, but you MUST have clean metal to begin with or the rust bubbles underneath and moisture and air are trapped next to the metal making the rust worse than if you had done nothing. When replacing parts coating will have to be burned off and redone. With FluidFilm replacing the film is as easy as filling a tire. I have the spray bottle full on shelf, hook up air and go.
Yes. I would never, ever have a truck undercoated with a rubberized membrane again. I had a Tacoma that was part of the frame recall that the PO had Toyota apply their undercoating to as their solution. I bought the truck thinking it was rust free since it was from CA and it had only been in WI for a couple of winters. Three winters later, the truck had holes in the frame and the rubber coating was still intact over many of them. That stuff is just bad news and as you say, unless it is 100% rust free before you apply it, it just makes things worse.
A grease or oil product is more labor intensive due to the need to reapply, but you can see where it is getting dry and just spritz on another layer and be good to go for another 6 months.