Q1: A Dead Drop is simply an agreed upon spot where you and your contact can leave a message for one another without actually meeting in person. They're typically used in conjunction with a “Signpost,” or a place where a signal is left which conveys the drophas been loaded.
Q2: It is used to pass items or information between two individuals (e.g., a case officer and an agent, or two agents) using a secret location. By avoiding direct meetings, they could maintain operational security.
The stanza begins with a physical description of the squirrel. The squirrel is grey coloured and therefore the poet says that he wears “an overcoat of gray,” his tail is twisted like a question mark.