What are the practical consequences of driving a rental car on unpaved roads?
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As far as I'm aware, there are no rental companies that actively validate that you've stayed on paved roads. The GPS trackers are there primarily as an anti-theft precaution, and while they may have the capability to record where you've been, I haven't heard of them being used for this purpose. In any case it would be quite difficult to reliably differentiate between paved and unpaved in a programmatic way, the GPS wouldn't know this so you'd need to snap to roads and then compare against some third-party dataset.
So in practice, the only ways to get "busted" are to either have an accident off paved roads, in which case your location will be reported and your violation likely detected, or to return the car with dirt/damage that makes it clear you've been off paved roads.
So to answer your questions:
Nothing happens. (This is assuming the car is returned tolerably clean as well as undamaged; I once had to wash a rental on my own after my GPS led us onto an unpaved and very muddy "shortcut" across a mountain, but I did this preemptively and there were no consequences.)
As long as the damage was unrelated to the unpaved road, the rental company will cover normally.
Any insurance you've purchased from the rental company is now null and void, so you are fully responsible for damages.
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