I don't understand the address mapping, I think there is some information missing as to why this is being done, so I have no comment on it.

Your code may need to be re-compiled so it knows MON51 is not present.

1. Possibly - you need to examine the MAP (M51 ?) file to see where the variables and stack are located, and see what commands are available to change them. For the free compilers, it puts limits on where code can be located, possibly ram too.

2. I think either - but for 8051, external means XDATA command is needed to retrieve or set RAM. The RAM can also be EPROM (for lookup tables) and also be referred to as external memory.

3. Code memory means EPROM, either internal or external, BUT, for prototyping purposes, there is a technique called EPROM Emulation, where a PC loads the RAM, but the 8051 thinks it is EPROM.