That is not the article "lo", but the personal pronoun "lo" (he or it as direct object, clitic form). As a matter of fact, many pronouns share forms with articles.
I think its because it indicates what he has done well. Lo = it, in this case. Which gets turned into 'l'ho'.
Tu l'ho/ you have it Fatto bennissimo/ done well.
Tu l'hai, not tu l'ho, it would be Io l'ho fatto benissimo if you want to say"I have done it very well," but "Tu 'l'hai fatto benissimo" to say "You have done it very well."
"Lo so" is the most common way of saying "I know" in Italian - literally "I know it" but not what you say in English when someone tells you something you know. I don't think the "it" is always mandatory to carry across the translation.
I agree. In most contexts, the "it" would be dropped in English. Note to self: stick with the more literal translation.
In practice, yes. Grammatically, no. Your sentence is in the simple past, but translation given with the exercise is in the present perfect. The passato prossimo is technically closest to the presnt perfect, but in Italian, the passato prossimo is often used where we would use the simple past.
Since h is silent, it's probably being ignored. Hai sounds like it begins with a vowel, so it's treated as such.