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If I created a new album and placed the photos I wanted in it. If I delete them from photo stream & my camera roll will they be deleted from the new album as well?
Yes, photos are not copied to the albums, just referenced, so if you delete the photo that the album references the photo from then the photo will be deleted from the album too.
Yes, photos in albums are basically like shortcuts or aliases if you will, to photos in the camera roll that you can organize into certain categories of your choice.