1) if the contractor pays DW but doesnt send us a W2 or 1099 and writes off the expense, do we get taxed on it?

Yes, it's taxable income to you, regardless if you get a W-2 or 1099.

How do we document it if we need to declare?

You keep lists, or books & records, if you will, of your income and expenses.

if he writes off the expense, is the IRS notified even if he doesnt send her a 1099, etc?

No. But it's still taxable income to you.

how does DD's earnings factor in when we file taxes? DW and I file 'married, filing jointly.' Do we need to include DD earnings when we file (we would be claiming her as dependent)?

The income is your daughter's, not yours. You have to file a return for her if she has over $400 in self-employment income. [That's the lowest pertinent filing requirement I can think of.]

Part 'B' of this question is a repeat of question 1, but as it relates to DD. Particularly if we get multiple small checks (< $1,000 each) from different companies.

Same answer as above. You have to keep records.

Bill