Please refer to the "Travel" section of the site for information on this subject.
No. Most places will take dollars or credit cards, but the exchange rate will vary a bit depending on the locale.
You don't! Most restaurants, if not all, already include tip in the bill for you, so you don't have to give more than that unless you really want to. Servers in Nicaragua do not expect it, but if you really wish to leave a tip, 10%-15% is customary.
Yes, it is perfectly safe to drink tap water in Nicaragua, but if you have a sensitive stomach, it is recommended to drink bottled water. You can always purchase a Brita water bottle before traveling for the wedding, which brings a filter inside if you want to save some money and be on the safe side.