Yes buy grass from the empire shop and place it next to dirt it will spread. Or make a dirt staircase with grass on one side and have it lead down to the area
Sheep need grass to re-grow their wool, I believe. I don't know if any of the other animals need it, although it would make sense if a cow couldn't be milked again until they ate grass, but I don't know if that mechanism is in place.
Do you mean bonemeal? It will grow tall grass, the kind that can be broken to get seeds, however doesn't change dirt blocks to grass blocks.
