Do I need to prepare file in specific format before importing?
Not at all, after uploading file, plugin provides option to map fields of your imported file with the corresponding option available.
Does this plugin allows import of featured image for posts? If yes, then how should we pass the value?
Yes, plugin allows import of featured image. You need to provide complete path of the image in file and plugin will download that image.
I need to associate some Meta fields and custom taxonomies also during post import? Is it possible?
Yes, it is possible. Just add columns in your file for Meta fields and custom taxonomies. During upload, it will ask to map Meta fields and custom taxonomies if already exists else you can create new Meta field and custom taxonomies there directly by adding using text field.
I need to import many posts e.g. 10000 posts. Will it work?
It depends on the server settings and in maximum cases, it will work. Once file is uploaded, plugin uses ajax to read and write to WordPress so It depends on your server memory and timeout settings. You can change that by changing php configuaration. Check this for large files uploading.