My guess is that doesn't turn off tracking but now you just won't be notified of it.

I admit though, as a user of the data, I find this very helpful. Google is absolutely brilliant at give real time traffic information to roads and businesses. You want to know if Costco is busy right now, they'll tell you. Accident getting there going to cost you 5 minutes, they'll tell you that too.

That's a separate option called location history. Alternatively you can turn off location in Android.

But does that mean Google stops collecting the data? Sure, no notifications, but will they still know what restaurant I just walked past?

As mentioned several times, disable Location History under Settings -> Google -> Location (on stock Google Androids you find that setting under Settings -> Location as well).

Yes; you can see the location history Google has been collecting at https://www.google.com/maps/timeline

But it's easy to stop collecting and/or delete location data; see https://support.google.com/accounts/answer/3118687

Depends on whether you've opted into Location History or not, which is the master setting for most of Google's persistent location-based features. You can check the setting here: https://myaccount.google.com/activitycontrols

When you know you will need directions, you can also look them up on desktop using generic origin/destination cities and emailing them to yourself on a non-Gmail email account.