NOTE: Khatovar got her post in before mine, and it is FAR easier to read (and maybe more correct).

Your analysis of Macros seems appropriate. Think of it as every time you press the Macro, it cycles through each line in the macro once. Starting from the top of the macro, it will cast the initiate the casting of the first available ability and then cycle to the end of the macro and Queue the last ability.

This states that if ever the last skill is available, it will always be cast immediately after any prior available ability has been cast.
Even if your character is in the recovery state, when you push the macro, none of your other abilities will fire, thus is will still queue the last ability.

I use this to my advantage by simplifying my universal DeBuff Macro. If I only want to cast 1 or 2 DeBuffs before tearing into the mob, I place the #1 ability first and the #2 ability last. I hit the macro once, wait a couple seconds for the second DeBuff to start casting then spam the DPS macro. In between these 2 can go all the other, less essential DeBuffs.

"If this is true what happens when abilty 2 becomes active while your on ability 4, will it recast ability 2 again, then go to 4?"

If you are in the middle of casting ability 4, when it is finished it will cast your last ability if it is available, regardless of your spamming. If your last ability is on Cooldown and you are spamming it will then cast ability 2.

The way you phrase your questions leads me to think that you are interpretting the macro system as a /castsequence from WoW, where the API remembers where you are in the sequence.

In EQ2, macros are processed as an immediate chunk of commands and the last position is not saved. If a macro reaches an ability and casts it, it is not because the macro is "on that ability", it is because all prior abilities are on cooldown and this is the first ability available to cast. The second is starts to cast that ability it moves on to all the other abilities, which is obviously cant process, as you are already busy casting. The macro ends, activating the last ability, which is put into queue.

Sorry if I explained the same concept more then once, I'm still trying to take these pieces of information and come up with something constructive. Re-iterating it to myself helps.

Setting the 2 most useful abilities to First and Last position is useful in Pull, Taunt and DeBuff Macros.

Keep in mind that if you put something with a really short Cooldown above something else, chances are the abilities below the Short Cooldown Ability (with the exception of the last ability, which will always fire) will either never fire or fire very late in the fight.