Mongodb – Is it correct to use IP addresses (instead of hostnames) while configuring Mongo DB cluster? Does it cause any issues

Actually, it is a Very Bad Idea™ to do a load balancing this way with MongoDB. First of all, you can give multiple mongos instances to the driver. If one mongos goes down or becomes unavailable due to overload, the driver will be happy to access the next available mongos. Second, the config servers and mongod instances get unnecessary load for continuously updating the cluster "map". Third, they most likely will initiate and tear down connections continuously, too.

The solution would be to use CNAMEs at the DNS level instead of multiple A records for a host, but maintain unique hostnames on the OS level. That is, the hostname command should return a unique value on every host of the cluster, including the mongos instances.

A word on DNS based round robin load balancing: It's crap when used on it's own. You don't have any control over the load actually sent to each of the balanced servers. In case you have caching DNS servers between you and your biggest group of unique users, you actually might worsen the load for an individual server. You better use a "real" loadbalancer in front of your servers, something like HAProxy, varnish or nginx (depending on your application). In case you need / want to have more than one of those, you can use DNS based round robin load balancing on these, though from my experience, it is better to make one load balancer highly available to prevent a single point of failure.

1. Are you saying that when you have logged in at Node1, you can connect that mongos service with --host node1 but not --host localhost? If so, check your /etc/hosts for address localhost

   But if you mean that you are at your application node and try to connect to localhost.. Of course it will not work.

2. Yes, it's OK.
3. Yes, admin users at config server replica set primary and shard replica sets primary is created for situation when you need to make changes directly on those replica sets.
4. Yes, that's correct. You cannot create replica set at mongos.
5. First, you don't need mongos process at every node. One mongos is enough. You could put that mongos to your application node too. BUT.. If you have connection problems outside of your nodes, check firewalls. I mean, even you can SSH to your nodes (what are in the cloud?!) it don't mean that those ports 1090x are open from outside world. If your nodes are in the cloud, firewall is not (only) in those nodes, your provider have own firewalls too.
6. You MUST connect to your mongos (10902) instance when you are creating new databases, users or adding new replica sets (shards) to cluster.

7. Take care that every mongod node can connect to every config-server and vice versa. Every mongos must be able to connect every replica set node at your cluster and of course to every config-server replica set node. How ever, none of mongod processes (shard or config) don't need to connect your mongos...

   Check your log files (mongos, config-server, shard) for errors..

   grep -iP 'error|fail' /var/log/mongodb/*.log