Have a look at this:
MD5 was the first widely popular hash that's computed on the entire file. It has some severe security issues, which is why it isn't in use as much anymore. By reading up on MD5 and how it was used, you'll find the answers to most if not all of your follow up questions.
But in simplified terms, if you hash any content a and apply a good hash function you get a binary hash value x. Make any change to content a, no matter how big or small, to generate content a'. The hash value of content a' is now a new hash value x', with each bit of x' having a 50% chance to be different from the corresponding bit in x.
Of course this means if you use a 32 bit hash, after you make any change to a you have a 2^-32 (0.000000023283%) probability to still get the exact same hash value. That's why hashes are usually longer than 32 bit.