No, it doesn't filter all of the water, just what you have running through it.
They mount under the sink and use a saddle valve on your incoming water pipe. I would put it out in the laundry area where the utility sink is, if you can. There will be a waste line and that will need to go to a drain. I have mine mounted on the wall above the utility sink and the waste line running in the sink.
the membrane is replaced about yearly, but the other stages are replaced more frequently, depending on how bad your water is.