Thanks for your question!
The best reference for these types of questions is our website, www.rachio.com, but I'll try to answer them here as well.
Our controller replaces your timer. The wires are still required, but you just take the old box off, and then replace it with ours. You would plug the zone wires from the old box directly into our box.
We have an 8 zone model and a 16 zone model, so it depends on how many zones you need.
We cannot tell you when a valve is not functioning properly, although it's a feature we'd like to have in the future.
The box talks to the valves through the wires you already have in your irrigation system.
Does that help? Happy to answer any other questions you might have.