There's a blue post over at the official forums trying to clear up some of the confusion. Essentially, those modes (Easy, Normal, Hard) do not alter Magic Find, Gold Find, and XP bonus in any way. They're just there for players to adjust the difficulty to their liking, increasing monster hit points and damage.
The Master I to Master V difficulties are different though:
- Master I: +60% Magic Find, +60% Gold Find, +120% XP Bonus
- Master II: +70% Magic Find, +70% Gold Find, +140% XP Bonus
- Master III: +80% Magic Find, +80% Gold Find, +160% XP Bonus
- Master IV: +90% Magic Find, +90% Gold Find, +180% XP Bonus
- Master V: +100% Magic Find, +100% Gold Find, +200% XP Bonus
That's pretty much the gist of it.
You need to hit level 10 to have access to the Master options.
All of this answer is for same-screen co-op. Online play is different. I have leveled two characters in coop from 1-8 with simultaneous level ups. Nothing special was done except that +xp gear was kept equal between them. I've also observed 3-player co-op with similar results.
Is exp divided evenly each time an enemy is killed?
Yes. If the players are equal level it's definitely even. There may be a little catch-up distribution in the case of non-equal levels.
If not, does the player who dealt the killing blow gain more experience? Is experience gain in any way related to the amount of damage dealt? Do I get exp for every monster killed by the party or only for the one I hit at least once?
No, No, and every monster killed by the party. Bonus rewards (such as Massacre from a kill chain) and Quests, also shared by the party.
Do I still get exp while dead (and waiting to be revived)?
I don't know this one - hopefully it doesn't come up much.
Do I get experience from special finds (i.e. books, scrolls, etc.) or does it only go to the character who activated the item?
Shared by the party. I have seen two characters level up at the same time when one picks up a book.
Is quest exp shared evenly among party members, or is there a way to get more exp than the others from a quest?
Shared evenly. Although it may be level adjusted.
Do items that increase exp gain only affect myself or also the other party members?
This is it, this is the only thing in the list that is personal. If you wear more +xp gear than your buddies, you will get more xp.
Money and loot for starters are individual.
Item loot is individual. Money is shared by copying. If one player picks up 10 gold, every player will glow and get 10 gold.
Best Answer
Monsters spawn in zones. Zones determine the levels and kinds of monsters. This is the same regardless of the number of players.
Scenario one: Solo level 15 in a level 15 zone. Fights enemies and gets some amount of xp per kill (suppose it's 20 xp).
Scenario two: Two level 15s in a level 15 zone. Fights enemies. Each player gets the same xp per kill as the soloer in scenario one (each player gets 20 xp for each dying monster). Adding a player increases monster hitpoints and quantity spawned.
What about level differences?
Well that's answered over here: How does experience work in groups of heroes with different levels? The only difference on console is that you are never out-of-range to earn xp. So xp is always copied perfectly between characters playing together (except with death, untested).
No. Level 15 monsters will destroy level 1 characters. Level 1 monsters will not reward level 15 characters.