As I understand it, this mod only includes:
1) Numerous battles with different enemy heroes
2) Carrying over set artifacts to the next missions
3) An enhanced battle against Markel
Are only these changes not canon, and are they made to improve balance/convenience?
Do all other changes 100% correspond to the canon of how the missions/scenarios were in the original game/Lords of the North?

The enhanced battle against Markel is more of a microfix; in the original, if you kill the main undead, the summoned creatures disappear, and the battle ends very quickly. Otherwise, you have to finish off all the summoned undead, as in the final mission.
Essentially, yes, 99.9% of the missions are similar to the originals, except that they include units from Lords of the North. I don't think the third tier hinders gameplay; it's just a game mechanic. No one prevents you from playing without the third tier if you want to, as in the original.
In short, it's best to see and play it yourself.