According to your visual example, yes, $P$ and $Q$ are 2-dimensional vectors. The equation in terms of vectors is just a compact way of writing the equations for the two entries in the vector. $P(t)$ gives the position at time $t$ assuming you start at $P$ at $t = 0$ and end at $Q$ at $t = 1$, and travel with constant velocity. The reason why you should typically assume $0 \leq t \leq 1$ is that this is the range of the data you were given, i.e. you have a start point at $t = 0$ and an end point at $t = 1$.