Elastic Mode adjusts the RP every time a VM is created? When we enable it, what about the existing org vDCs ? Will they be converted, or do i have have to change that manually ?
Elastic mode is just a statement of how we treat the Allocation Pools. There are some slight differences between how we calculate and assign resources between Elastic and Non-Elastic. The check mark determines that mode. However, if you want to have more than one resource pool backing an Allocation Pool (Elastic vDC), then you must have the feature enabled.
And it will take the reservation into account, so that we won't run into that issue ?
Each allocation model handles reservations (guarantee) in their own way. There is a white paper on this. http://www.vmware.com/files/pdf/techpaper/vCloud_Director_Resource_Allocation-USLET.pdf
Since we made all memory allocations bigger than needed, will we be able to reduce it to the size the customer ordered ?
You can either reduce the amount of Memory Assigned (Allocation) or Reduce the Guarantee (Reservation as a %). Both these will reduce the overall consumption. Remember that an 80% Guarantee allows for a 20% overcommitment of a given resource type (vCPU/vMemory).