Does recon spot in mountains, woods, cities etc?
Yes, but with the caveat: Maximum Detection level 2: Non air base units located in non clear terrain and not adjacent to enemy units.
DL 3 is required to determine a unit's type.
Not sure if all covered terrain is considered equal.
How does it see more than the hex you designate?
Not quite sure how this works, as I often see units several hexes 'beyond' my target hex, as well as between the target hex and airbase. I tend to pick spots between already visible units in the hope of seeing something new and increasing the detection level of those I've already seen.
Does it help in attacks by ground forces?
Does recon work less well in bad weather?
Mud weather also increases the chances that individual aircraft or complete air group units will not participate in missions or that the entire mission might be cancelled due to inclement conditions (16.1.5). Snow represents mild winter conditions with freezing temperatures and snowfall. Movement and supply tracing costs are increased by +1 MP for all units. The impact on air missions is the same as in mud, with an increased chance of aborted aircraft, air group units and entire air missions. Blizzard weather represents extreme winter weather, with temperatures well below freezing accompanied by high winds and heavy snowfall. Movement and supply tracing costs are increased by +2 MP for all units. The adverse impact on air missions is approximately double that of snow or mud, with greatly increased chances of aborted aircraft, air group units and even the cancellation of entire air missions.
I think you can safely presume the fewer aircraft that fly the worse the detection ability of the mission.