The hyphenated form is more common when used as an adjective. This is a correct compound adjective commonly used before a noun. Use "small-scale" when you want to describe something as being on a small scale, especially before a noun.

In many cases, yes. In "fifty-year-old woman," for example, the hyphens link modifiers together to make it absolutely clear that we're talking about the woman's age. In "small-scale study," the hyphen clarifies that the study was small in scale, not a study on scales designed for mice.