1) If you are plugged into shore power and the blue light is flashing and the yellow light is not on float/absorption/bulk, the inverter is assisting shore power, which is not sufficient at the moment. This is exactly how it's supposed to behave. I have been using my setup for nearly 12 years now and this is how it behaves.
2) The rheostat/dial for adjusting the amps is simply a "shore power limiter". It limits the amount of power (amps) your boat will draw from shore power. Nothing more than that. There is absolutely no risk in experimenting with it. The worst that can happen is that if you set the amps too high, you might try to draw more shore power than the the marina system can provide and you will trip a circuit breaker on the dock. There is absolutely NO risk to your system if you wish to experiment with this! How is this rheostat useful? Here's a scenario that, unfortunately is not so uncommon: You stay at a marina where 2-3 boats are all pigtailed to a single "lamp outlet". If any one boat draws too much, the circuit breaker on the dock will trip (and it may not be accessible to re-set). If you want some power, but do not want to contribute too much to the risk of overload/circuit breaker tripping on the dock, you dial down your Phoenix limiter to only a few amps. This means your inverter will kick in to assist from your battery if you run the oven (blinking blue light), but after that, the system will go back to (slowly) charging your batteries (solid yellow light on bulk/float or absorption).
3) About the BMV 702 showing only outgoing amps...
When I first got my boat the Victron BMV 602 showed the amps. I = xx.
I, too, thought it was only showing outgoing amps, until it was pointed out to me that there is a very small minus (-) sign in front of the number for outgoing amps and NO minus sign in front of the number for incoming amps. It is really easy to miss the presence (or not) of that minus sign. Have a close look!