The Aura of Decay is a ranged weapon that can be used while the daemon is in close combat and while any of its targets are in close combat. Additionally it does not affect units, but models. So if it is the shooting phase, and there is an enemy model within 6" of the Daemon using the Aura of Decay as its shooting, then it automatically causes at least one S2 hit.
Ergo:
1. No, because it is a ranged weapon.
2. You use it in the Shooting phase and then follow up with your normal complement of attacks in the Assault phase.
3. The Daemon uses Aura of Decay in the Shooting phase. Hits are automatic and each enemy model within 6" of the daemon model is hit. Wounds are rolled and saved, and casualties removed, as normal. Then the daemon fights whoever survives in the Assault phase.
So you have the choice of having the Daemon run or use its Aura of Decay, and you have to use it in the Shooting phase. None of the wounds it causes contribute to close combat, and it does not replace close combat attacks.
Edit: Corrected first paragraph.
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