In the First Project quickstart http://www.kdenlive.org/user-manual/quickstart-guide/kdenlive-first-project under the "Project Settings & Preferences" section it says "You'll need to setup your preferred video profile (DV, HDV, ...)"

Is that preferred video profile referring to the input clips, the target output or what?

Output, afaik. Video profiles were always target output for me.

There is no golden rule. You should consider both the highest resolution of your source video footage as well as outputs that you might want and lifetime of the project. The reason to consider the highest of the source video is because you might want a higher resolution sometime in the future, but if the lifetime is short (just a quick, ad hoc video), you do not need to consider anything but the immediate outputs. Perhaps only choose 4:3 aspect if the clear majority of the material is 4:3.

Your statement indicates the setting controls the working resolution of the project. ie, the internal state that kdenlive will maintain. Is that correct?

Yes, for that project.