When water seeps into cracks in the pavement and freezes, it expands; causing the cracks to widen. As vehicles ride over the area they loosen the pavement further and force the pieces to come out.
Not always. Can simply be insufficient preparation of the roadbase, substandard materials, poor design, underestimating the traffic load a road will carry etc. I've done a tyre or two hitting potholes - it never freezes in Adelaide. You get bulldust holes in unsealed roads in the Outback, too - those can be dangerous. Hitting a bulldust hole at speed is not significantly different from hitting a wall.
Element 99 