If I have 3 and 1/2 in , rouding to the nearest 1/2 in is going to be 4 in ?

Rounding to the nearest half inch means that you'll have values like:
4 in
2 and 1/2 in
1 and 1/2 in

but not:
4 and 1/3 in
2 and 1/5 in
1 and 4/5 in

It means, you don't have to change anything for the problem you posted.

Yes. The nearest 1/2 inch is also the next whole, because its made up of two halves.
1, 1 1/2, 2, 2 1/2, 3...

Another way that might make the concept more clear is to think of decimals. 3 and 1/2 is 3.5 in a decimal. The .5 means that you are right in the middle of two whole numbers. Whenever you are right in the middle you always round up.