this. I would also describe it as an amateur BC2 mod, where somebody tweaked all the damage numbers and reload times and everything to carefully make the game no fun.
You could also use pro cutter in max. It works really well for creating broken/damaged pieces to use as static meshes or to use in a reactor simulation.
That is actually correct. It would overwrite the underlaying normal. If you want both the normal map and the edge damage to show, use half opacity on the edge decal.
Also this recent topic might help explain the quality level that can be achieved, and how https://polycount.com/discussion/224114/tiling-textures-sculpted-damage
IN regards to the sword detail, just imagine where the sword actually makes contact with other objects. That should localize the damage areas you're looking to paint in.
Nice work. Personally, I'd add a spray paint on the crabs underbelly that says "Attack this weakpoint for massive damage." After all, this is a GIANT ENEMY CRAB.