1) When it creates data on key system files, what and how many files are covered (ie is it the files in System and system32 etc)(what file types are covered eg dlls, exe etc)
Executables only: .exe and .com basically, regardless of where they are. It scans all fixed disks.
2) When it runs does it overwrite the previous copies from the previous run or does it keep the last few sets of copies
It's not a backup system, storing copies. Just some information of the executable are kept. The last three versions of each file info is stored.
3) Is there anyway of viewing what files it has stored and will future versions of Avast allow you to add files you want copied on top of the default set
No. This is an automated processes when avast tries to repair infected executables. You can't manually add a file into VRDB. Again, it's not a backup feature.
4) Is there any plans to improve this feature in future updates (Alwil specific answer please)
Pass this one as you want an official answer...