Many of your questions about the details of the point scores are answered here in Association journal #2: http://www.yangfamilytaichi.com/association/news2.pdf
The theory exam is a written exam with no oral component. Ask your teacher for advice about what to study for the written exam.
The testing procedure is very similar for levels 1-4, what differs is how many forms one needs to know and the amount of leeway one is given for discrepancies in the forms. Of course, what follows is only my understanding of what the judges are looking for. It will vary from judge to judge and from center to center. The newsletter link above contains the standardized requirements.
At level one, the requirements are not as strict. Some basic things the judges look for are: Has the form been memorized? Is it performed smoothly and evenly?
At level two, more attention is paid to seeing that form movements are more standard. Also, judges place more emphasis on the spirit of the student (liveliness, presence, calmness, expression of will).
At level three, evaluation of the form is even more strict: precise footwork and hand positions are valued. Is it clear that the student knows what each application is for and is demonstrating the correct energy points? Is their intention aligned with their movement so that the expression of presence/will/spirit is evident? Are the movements smooth and even?
At level four, my impression is that judges are looking for everything in levels 1-3 to a more precise degree, plus more embodiment of the ten essentials. Can the student combine inner and outer? Are the movements guided by intention? Is the spirit calm but elevated?
During the form examination itself, I recommend staying together as a group so there's less opportunity to get confused about the sequence. If this is not possible for the whole group, it still may be possible for two within the group. If you get confused, don't panic, just slow down, sink your chi, ground, and you may remember the next move before you get to the end of the posture!
It pays to read through the document in the newsletter: for example, it's OK to pause for 5 minutes in your form if you forget the sequence because you only receive a .3 point deduction so long as you continue. But if you break the form, walk out, and ask to start over you will have an automatic 1.0 point deduction and likely be unable to pass the exam.
Practicing in public is a good idea because it helps to reduce the charge of performing under pressure. It might also help to practice with classmates in advance and take turns watching each other as though judging.
Taking the ranking exam allows the opportunity to gauge where you are and what needs more work. I have met some students who attended practice sessions but were so discouraged by the many suggestions offered that they did not take the exam--in spite of being otherwise well qualified. This is a chance to ask for feedback on your form, but don't be disheartened if your classmates find many things to correct. This is typical througout the study of tai chi chuan, which is a cumulative and ever-changing art. If there were not always refinements to make in one's form, it wouldn't be an art with enough depth to make life-long study interesting or challenging.