Generic DNG format question
In answer to your first paragraph, LR needs to perform the rendering. When you perform an edit in PS, LR will render all your develop settings into a new TIF or PSD file that is read by PS. Do your adjustments in PS and then save. The TIF or PSD file will then be returned to LR. Your original raw file remains intact and unchanged, along with all your develop settings.
The DNG format is an Adobe proprietary file format but it's format is open to all. Personally, I've never bothered to convert to DNG (unless the camera is so new that I've had to use the Adobe DNG Converter), preferring instead to retain the original raw files.