You can also create a DYM pathway and then just make a payment to yourself of, say, some number of DYMs and click the 'XRP' payment button. That can take from combinations of exchanges and pathways to get a better deal, if there is one.
When you make a payment to yourself of DYMs (as an example) if there are no people selling DYMs on the market, will it automatically create a new IOU and create an obligation on the issuer of DYMs or does the issuer have to approve the transaction?
There's no way it could create any such obligation -- what exchange rate would it use? If an issuer wants to sell his IOUs on the market, he has to create an offer to do so at a particular exchange rate in exchange for something in particular. His can sell an unlimited quantity of his own IOUs if he wants, but he has to set the exchange rate.