To answer your first question... .format just seems more sophisticated in many ways. An annoying thing about % is also how it can either take a variable or a tuple. You'd think the following would always work:
"hi there %s" % name
yet, if name happens to be (1, 2, 3), it will throw a TypeError. To guarantee that it always prints, you'd need to do
"hi there %s" % (name,) # supply the single argument as a single-item tuple
which is just ugly. .format doesn't have those issues. Also in the second example you gave, the .format example is much cleaner looking.
Why would you not use it?
To answer your second question, string formatting happens at the same time as any other operation - when the string formatting expression is evaluated. And Python, not being a lazy language, evaluates expressions before calling functions, so in your log.debug example, the expression "some debug info: %s"%some_infowill first evaluate to, e.g. "some debug info: roflcopters are active", then that string will be passed to log.debug()