Graph - Square of a directed graph

Yes, that's exactly what it means. E^2 should contain (u,v) iff E contains (u,v) or there is w in V, such that E contains both (u,w) and (w,v).

In other words, E^2 according to the new definition is the union of E and E^2 according to the old definition.

Regarding to your last question: it doesn't matter what other paths between u and v exist (if they do). So, if there are two paths between u and v, one with 2 edges and one with 3 edges, then (u,v) should be in E^2 (according to both definitions).