Your audience comes from two lists. The first is your customers who match the groups you ticked and who agreed to receive your offers, for example by ticking Keep me updated with offers and news at checkout. The second, only if you switch on Include newsletter subscribers, is everyone on your newsletter list who has not unsubscribed. Someone on both lists with the same email is counted once and gets the campaign once.
The email goes to everyone in the audience who has an email address, and it is free. The SMS goes only to customers whose phone number is verified. Customers with an unverified number and newsletter subscribers get the email only.
Yes, SMS uses your SMS credits. The segment counter under each message box shows how long your message is, and a longer message uses more credits. If your credits run out partway, the rest of the SMS show as Failed when you open the campaign in History, so top up your credits before a large SMS campaign.