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The following FAQ entries may contain spoilers. Only the biggest ones (if any) will be covered with spoiler tags. Spoiler tags are used sparingly in order to make the page more readable.
For detailed information about the amounts and types of (a) sex and nudity, (b) violence and gore, (c) profanity, (d) alcohol, drugs, and smoking, and (e) frightening and intense scenes in this movie, consult the IMDb Parents Guide for this movie. The Parents Guide for I Know What You Did Last Summer can be found here.
While it's possible that Julie was just hallucinating, the fact that she saw that she saw the body and that she had no idea that Max was dead suggests it was real. The way the killer could have removed the body from the trunk without a trace is that the body and the live crabs were stored in a body bag or something of the same size with a zipper on it. So when Julie wasn't near her car, the killer placed it in the trunk and opened the bag. Then the killer followed Julie until she pulled over and saw what was in the trunk. Once Julie ran off (she pulled over before getting to Helen's house so it's possible that she could have ran quite a fair distance) the killer had time to pull up in his truck or car and collect the body and the crabs. However, this still would leave a smell of both death and seafood in the trunk so the only logical explanation is that the killer sprayed Lysol or something similar in the trunk to kill the smell. As thin as that explanation might be, it's the most likely aside from it being a hallucination.
Ben Willis (Muse Watson) is the killer. David Egan, brother of Missy Egan, gets into a car accident with his girlfriend Susie Willis—causing her death. Susie's father, Ben Willis, blamed David for the death of his daughter. Ben eventually kills David Egan (off-camera) on the night of Julie, Helen, Barry and Ray's graduation and disposes of his body over the cliff side he was sitting on (just after the opening credits). As Julie, Helen, Barry and Ray are driving, they hit Ben Willis, who was apparently walking across the road after just killing David. Ben, however, doesn't die and he returns to stalk and kill the teenagers as revenge for running him over.
The setting takes place in Southport, North Carolina. A realistic town off the Atlantic Coast 30 miles south of Wilmington, North Carolina and 60 miles northeast of Myrtle Beach, South Carolina.
No, just one. Ben Willis is the fisherman whom the teens accidentally hit with their car and he is the one stalking and killing them as revenge for leaving him for dead and disfiguring him (as evident by a barely visible scar running across his left forehead and right cheek when Julie first meets him face to face). According to the sequel, however, it is possible that Will, Ben's son, was in town and may have helped Ben participate in the killings or at very least helped move the bodies while Ben continued stalking his victims. As we see in the sequel Will never actually did any killing, just assisted.
Probably to ensure the audience that the man in the slicker was out to kill the four main characters instead of just stalk and harass them. However in the context of the story there is no definite reason why the Fisherman (Ben Willis) killed Max, however there are a couple of theories that are speculated: (1) Max was present at the scene the night that Ben was run over and perhaps Ben thought that Max knew that Julie, Helen, Barry and Ray had hit him and were trying to cover it up, (2) Max said that he was going to call the cops on Barry and if the police were involved it would make it more difficult for Ben to exact his revenge so therefore he had to get Max out of the way, and (3) Earlier in the film, Max and Ray were competing for Julie's affection. Part of Ben's method was to make it seem like Ray was the killer so Max may have been killed in order to draw suspicion towards Ray (and Ray already had a motive to kill Max).
Because the killer wanted to create the impression that Ray was behind the whole thing and may actually be the killer. He did this so that he could drive a wedge between the 4 characters making it easier to carry out his revenge. Make no mistake if the killer had been able to kill Julie it was very unlikely that Ray would have lived much longer.
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