1. Can the equation of a circle be differentiated?

Yes, by using implicit differentiation.

2. Should all implicit relations and functions be differentiated implicitly?

Not necessarily, if it is easy to re-arrange the relation first, the function should be made explicit and then differentiated "normally" .

3. Why is the term relation used and not function?

Because many implicit relations, such as circles, seldom fulfil the condition of a function i.e. One x-value gives just one y-value.