With priority set to 0, what does that actually mean in practice?
First note that the priority levels unimportant, normal, elevated, and priority correspond to multipliers of x1, x4, x20, and x166, respectively.
With priority set to 0 it will use the default fee multiplier, which is x4. In addition, the fee priority level is static, i.e., it won't change automatically if the mempoool grows and users have to set it manually. Transaction using the default priority will give miners sufficient incentive to raise the blocksize limit. By contrast, if everyone would use the lowest priority (x1), miners wouldn't have sufficient incentive to raise the blocksize limit and the mempool would, most likely, become clogged.
why not have the options as priority [1|2|3|4] - unimportant/normal/elevated/priority fee, with the default setting as 2?
The current implementation was probably designed for convenience. That is, after manually changing the fee priority level, it is probably more convenient to switch back to the default level, as it implies the standard / default setting recommended. By contrast, the term "normal" might be less efficient in conveying this.
More information about fee multipliers and the adaptive blocksize algorithm can be found here.