How does it all work? Is there a season? Playoffs and championships? The thing is fake, right? Do they acknowledge that?
There is no structure to any of it. In fact today in WWE they go against plain logic. For example Sting lost to Triple H at Wrestlemania, yet Sting after losing his last match against Triple H got a Championship match against Rollins.
John Cena beat Rollins for the US title (Rollings had both titles) thus John Cena should get a title shot by any boxing or MMA logic. Alas no.
WWE is today ashamed of the fact that they are wrestling, they do not outright say its fake, but they are scared to take it too seriously. This manifests itself in too much comedy. They are scared to present a realistic angle with 2 serious characters. It has to be goofy and silly.
Is the crowd supposed to be in on it?
The crowd was not always in on it, especially the younger crowd in the 70s and 80s. Back then the crowd believed it was real to some extent, while the people in the back believed it was fake.
Today its the reverse, the crowd knows its fake and is trying to desperately send signals to who they like and do not like. Meanwhile the people in the back believe its real, real in the sense that they judge who deserves to be a main event er and who does not. The roles switched and its bizarre to witness.
Is japanese and mexican wrestling fake?
In the 70s and 80s, wrestling in the US was sorta split into 2:
North/east style, WWWF aka WWF aka WWE was mostly slow, full of big guys, not very athletic, almost resembled a comic book
Southern "raslin", dirty in the sense that you had very hot angles that were rooted more in realism, resembled a early 70s action movie in a way.
Japan has always leaned on more realism, less goofiness of the American counterpart. Mexican is both flashy and dirty similar to southern "raslin"
How do characters decide if they are good guys are bad guys?
The promoter decides, unless the wrestler has enormous political power. Today nobody really has that power anymore.
If you recall what i wrote above, there is a disconnect between the promoter and the fans these days. A large portion of WWE fans have booed and wanted John Cena to be a bad guy, WWE refuses to listen to this. Meanwhile WWE recently tried to book fan favorite and legend Undertaker, who is merely a few matches from retirement, the fans do not want to boo Undertaker. Logically one should be both at different times during their career, as that opens up new feuds and possbilities. If i fought you as a bad guy, and we drew money. Then we are separated, i become a good guy later on, and you become a bad guy, and we can do our feud again, drawing money while still seeming fresh because we have changed character.
As for Goldberg, he went to WWE and they butchered his character and killed his appeal, he left and that was that. Goldberg is just one of many ex WCW guys who went there and was mishandled, others include Scott Steiner, nWo, DDP and recently Sting.