I don't see any point putting a school on a form you would refuse under all circumstances to send a child to.
If anyone is thinking of refusing to send a child to the school they're allocated, they need to have an alternative in mind, be it home schooling, private education or moving to New Zealand. Just refusing a place isn't going to get anyone into a school they prefer, but it will put off the allocation until the only choices left are even less popular and more distant.
It might be worth bearing in mind that the worst local case scenario might be better than a poor school miles away that one could be allocated if you were to leave a blank on the form.
That's right. If the council can't give you a place at one of your ranked schools, they will allocate you to the nearest school that still has places left after everyone else has been given a school they ranked. You may be able to work out which school this is (depends on where you live). So the outcome for you will be the same as if you added that school as your last preference. You need to decide whether there is no other school you'd prefer to that.