Sorry for the delay - I was busy getting a minor update ready, which you can read about in my latest forum post. On your questions:
1. if you have no object selected, and you then drag/drop a material over an object, the material will be assigned at the body level. If, on the other hand, you have pre-selected an entity (or entities), then the material will be assigned to those. So to assign to a face, pre-select the face, then either drag/drop the desired material, or right-click it in the materials tab and choose 'Assign to Selected.'
2. you drag and drop them on objects in the viewport. Alternatively, you can (as noted above) select an entity, or set of entities, and assign to them all at once by right-clicking the material and choosing 'Assign to Selected' from the material's right-click menu.
3. partly answered in the first point, the answer depends on whether you are working with a part or an assembly document. If it is a part document, select the desired body (you may want to enable the Body selection filter in SolidWorks) and the assign the material using drag/drop or the material's right-click menu. If you are working with an assembly, you need to decide whether you are trying to assign the material to all instances of a particular body, or just to one. Parts in an assembly are not unique with respect to materials -- when you assign to a face, feature, or body, you are really assigning the material in the part's SLDPRT document. If, however, you select the part at the component level and assign a material there, the assignment will only exist in the current SLDASM; that is, it will override the materials assigned in the SLDPRT document.
4. sometimes it is necessary to use the plugin's 'Refresh Viewport Materials' command -- this is found in the toolbar at the top of the plugin's Database Manager window. Let me know if that helps in this case, or if there seems to be some other issue.
That said, there were some material assignment/retrieval issues that I found and fixed in the 2.0.6 plugin update I posted about a few minutes ago, so you may want to try using this new version and seeing if it takes care of any obscure problems you may have run across with the 2.0.5 release.
Next Limit Team