Hello, thank you for your questions!
1. True names, in many fairy stories, refers to a person's full / real name. It is generally advised to avoid 'giving away' your true name to the fairies, hence players are prompted to either accept a default true name or make their own, along with a nickname, which is what the MC will be (eventually) referred to by the cast, etc. Ergo, if your true name is Samantha, your nickname could be Sam (or something entirely different from the true name - obscuring one's true name as much as possible is often advised 😉).
2. Would making the arrows different colours help with this?
3. We'll make a note of this, but can make no guarantees. In the original demo we only had one sprite option, and our Kickstarter fell short of the full customization goal, so financially additional sprites are off the table at this point. Regardless, these sprites only functionally appear when Daonna appears, so players are free to imagine any number of differences between their MCs and Daonna, such as variations in hair length, style, etc.