Index of questions here...
Would it record all add, update and delete activities made by a user?
Yes, it records all these 3 activities and additionally will also records when a user logs in or logs out.
Can we control on what modules we want to record activities?
Yes, from the admin panel locate "Activity Monitor Settings" and set on which modules you want to record activities.
How to disable login and logout activities being recorded?
If you dont want to log login/logout activities go to Activity Monitor Settings and de-select Users module.
Other add-ons of interest
Glances - Integrate All Your Applications
Accomplish More Every Day. Spend your time on getting things done, not on finding information. Glances securely connects all of your apps and provides a simplified view of the data you need right when you need it, in real time.
Tired of having to delete Contacts and related Activities by hand when deleting Account records? deletePLUS puts you in control of what records are deleted AND which of the related records are deleted. Available from the Accounts, Contacts and Opportunities Actions menu - fully configurable