Points affect your player-versus-player ranking, and xp affects your score. Score is used to get on the High Score list, and in the past, players with the highest point-rankings got a $10 prize :)
Unfortunately, the game stopped getting advertised when nobody wanted competition for the $10 prize, so the Admin nixrlame decided to remove the prize.
Buying stuff from the vendor is temporary, it only lasts until the end of the battle. Someday I would like to battle with you both.
Mushrooms are used to increase the attack of warriors.
Grapes are for archers.
Ginseng is kinda useless, but great for taking down a skeleton with your mage (mage + ginseng + skeleton in water + hit-from-behind = upwards of 10 damage :)
Another way to increase damage (and attack-accuracy) is to activate your Special Attack.
It is activated clicking the crosshairs below your action-points box (blue), and does nearly twice as much damage as regular attacks (the smaller crosshairs beside). You can experiment with Special Attacks, Regular Attacks, and Weak Attacks, to find which does the best damage for your action-points.