An experiment found that the brain uses one set of neural circuits to identify the numbers 1–4; these circuits are very specific to their own numbers. A separate set of circuits respond to the numbers 5–9; these are less precise, and are activated by adjacent numbers.
For this reason, it is easier to determine when there are four things than to determine there are five things.
Yes. And they had letters grouped with the numbers because 26+ keys is a lot to fit on a small but still usable keyboard (or dial, originally).