Sounds like this is intended to be a rather lacy type of pattern - rather pretty.
Are you supposed to get an increase every time you do your yo? Doesn't sound like it from the instructions you posted. I'd think you'd want your piece to lay flat.
Yes, your yo is a 1-stitch increase. That's why you need to compensate for it by decreasing one stitch - either by knitting 2 together or by slip one-knit one-pass slipped stitch over. Which is how your instructions read - so your overall number of stitches remains the same.
If you increase, shouldn't your increases just mostly be along the two edges?