1. How did BTC increase in value to current values from first BTC? compared to stocks/ shares etc.these have underlying value based on income, assets etc.
BTC is a deflationary asset and that's the only reason it gained its current value this high. Another reason is the mining feature attached to it. It costed less to mine BTC in its early days when difficulty was damn low and so the price was low. Difficulty adjusts with the type of machines used to mine BTC which makes it harder for miners to find blocks, this is why it's necessary for traders to keep the value of BTC "even" matching it with miners' costs and even more in order to let them continue their mining.
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2. for future BTC growth, if more people hold on to BTC as an "investment" than use it, does not present any issues?
Satoshi held his coins above a decade and they're still there. Did it make any difference? Maybe a small difference can be seen and that is, price hike because if no one will sell, they'll probably do this for price rise. Hodl we call it.
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3. Volatility and purchasing power - isn't this a potential issue? If I bought a car for example for 50BTC, and the current fiat value was worth $ 50 000, but then in a years time the BTC value halves (or doubles), does that not mess around with underlying value of anything significant you may buy with BTC?
You bought the car with your BTC when it was worth $1k (based on your example) and then if someone else (even if you don't buy a car and) wants to keep it a year later, then it's your problem because BTC is a volatile asset and when you trade anything that works almost as a stock, you need to understand the risks as well. After all, 1 BTC is just 1 BTC in the end.
