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Yes, oracle create standby archivelog file at standby in LOG_ARCHIVE_FORMAT because by default data is written to standby redo and then archived to standby.
1) Does Oracle create standby archivelog file at the standby site based on the format specified with LOG_ARCHIVE_FORMAT? If FRA is on, then oracle ignores the format specified with log_archive_format parameter and creates the archive log files on it's own. Right?
yes, right, If you implement FRA, then LOG_ARCHIVE_FORMAT is parameter is ignored.
Because as said above, data from primary is written to standby redo and then archived. So, archive log mode is required.
Why do we need to put physical standby in Archivelog mode? Is it only because of switchover/failover?
Why do we need to put physical standby in Archivelog modeYou don't "put" a physical standby in archivelog mode. It uses a standby controlfile that inherits attributes from the primary database -- one of these is the ARCHIVELOG mode.
Hemant K Chitale
Physical database should be in archive mode otherwise Oracle Data Guard would not work properly if you perform a switchover or failover.