Yes, if you can apply a discount and you are not paid in full your balance will lower. If you are paid in full I believe they credit whatever form of payment you used.
With Free Dining there has to be rooms available at the resort you want. If you have POFQ booked, for example, they may not have any rooms available for Free Dining. POFQ is often excluded. For a percent off discount there has to be rooms with that discount available, they don't discount every room only a certain number of rooms. For my trip in October when the percent off discount was first offered I couldn't book a garden view room at the Poly with that discount, but the same room was available for full price.