Will this diffuser scrape on driveways or steep inclines?

The TZ profile is designed with minimal extension to keep clearance similar to stock. Verify your approach and departure angles before installation, especially on lifted or lowered setups. If your vehicle sits lower than factory spec, test fit or mock up with cardboard first.

Does this diffuser do anything functionally or is it cosmetic?

This is a styling piece. It complements the rear fascia and exhaust exit without functional aerodynamic claims. If you're pairing it with other aero parts, ensure they work as a cohesive set to avoid conflicting air patterns.

What's the best way to prep and finish this before installation?

Sand and prep the FRP surface with your chosen grit to smooth any tooling marks, then apply primer and your final paint color. Reference your vehicle's service manual or paint supplier for primer and topcoat compatibility. Let cure fully before mounting to the rear bumper or fascia.