1) Is this square wave act as a DC current? Hench DC voltage is bad for speakers.
You are on the right track. A square wave can be defined as "pulsed DC".
2) What actually is clipping? From what I understand its providing too much current to a driver
Clipping is asking too much of the amplifier. You have a high and a low as defined by the middle of the sine wave. If you have an amp capable of 100 watts and you overdrive it, it will reach it's 100watt limit and flatten the sine for the period of time it takes for the signal to drop back below it's 100 watt limit.
.
3) How does this AC sine wave turn into a square wave? and how?
Overmodulation of the input signal.