- Will people be paid to work on these tools, YCombinator style?
No, although if any companies interested in the projects were to offer funding it could no doubt be put to good use. The main motivation is to turn cool ideas into useful systems.
- How does an official 'annointing' of some page on the w3 site do any benefit for the project, compared with the kind of inflows you'd get from getting linked from tech bloggers?
The 'annointing' of a project isn't expected to make any difference in itself, but a project proposed through this initiative will have increased visibility, in particular to people with expertise in the field. That'll be in addition to any other tech blogger inflow.
- How does this differ from the Semantic Web Challenge?
This is not a competition, as it is an attempt to gather people around some projects rather than having them compete.