How to reverse the effect of burning an effigy

In order to reverse the hollowing you need to use the Human Effigy (like you would use a lifegem), not burn it at a bonfire. This means you're able to use the item anywhere, and can save them for right before a difficult boss fight.

As of Patch 1.03, you'll regain a small portion of humanity for helping other players:

Players now receive a small portion of Humanity after successfully assisting in a Multiplayer session instead of regaining full Humanity.

Finally, there is a way to increase your maximum HP when Hollowed:

! The Binding Ring will ensure your maximum health can't go lower than 75% when hollowed. You find this ring in The Cathedral of Blue, right before entering the fog gate. It'll be in a chest to your left at the top of the drawbridge. If you are playing Scholar of the First Sin, then the earliest Binding Ring can be found in Heide's tower of flame right before the dragonrider boss fight, there is a Heide's Knight sitting in front of a chest, tackle him and you will receive the ring from opening the chest.

No, it doesn't affect the entire named area. It only affects the area between the bonfire on which the ascetic is used and the next bonfire. All enemies after the next bonfire will not be affected. For example, the first Aldia's keep bonfire will affect the rats outside the keep, the black phantom within the keep, the mirror knight enemies, the ogre and the giant basilisk but will not effect any enemies beyond that point as they all fall within the vicinity of the second bonfire, despite all the enemies beyond that point still belonging to Aldia's Keep. If you used an ascetic on the second bonfire, then all the aforementioned enemies would not be affected, and only the enemies between the second bonfire and the boss (including the boss, as the boss is 'associated' with the second bonfire) will be affected. I know it's a poor explanation, but hopefully it gave you an idea as to how the mechanic works.