Oh dear this is going to be a long thread
I know the rating is restricted to the UK,
The IFR privileges are limited to UK only, but the removal of the requirement to remain
in sight of the surface when flying under VFR is valid worldwide (I have this in writing from the CAA).
however in what way is it practiced? Can you file IFR flight plans, even though you cannot fly in airways?
Yes, though it is fairly pointless except for search/rescue purposes. An FP is mandatory only outside the UK, but you can't fly IFR outside the UK.
It's possible to file IFR flight plans with a route that keeps you below Class A but the UK doesn't really have a meaningful "system" for that, other than addressing such an FP like it was a VFR one, i.e. nobody en-route knows about you and you don't get any clearance into CAS other than what you are permitted as you progress along the route. The UK also has no enroute ATC service below the airways (mostly Class A) that is of any value; you can get a radar service from bits of LARS here and there but that's more or less it. So - if you still really want to file a flight plan - you may as well file a VFR one and then change to IFR when you feel like it (or when you see IMC ahead).
Perhaps the best use of filing an IFR FP is if you are heading for a major airport (in Class D or lower, obviously in your case) to land with an instrument approach; they will be more impressed than if you just turn up VFR and ask for an ILS - in fact some like Cranfield will refuse the ILS if the weather is actually VMC.
IFR flight plan filing is a big science / black art and if you get too smart and try to file an FP which looks like an airways one but is in fact below Class A, and that FP gets addressed to Eurocontrol (which controls airways routings in Europe) then it all gets very messy. In the UK, the Class A service is totally separated from all the dross flying below and they will assume you have an IR and can just send you off into Class A, and get totally confused if you refuse. The IMCR is to be used and enjoyed to get from A to B while legally drilling holes in clouds, not for flying pretend-airliner routes
Can you upgrade to IFR from VFR if the weather starts to get below VFR minima or if you need to decend through cloud to get into an airfield?
Yes, in the UK, outside CAS (OCAS), the VFR v. IFR state is entirely in your mind and you can change anytime. You can fly non-radio too! The only time it really matters is if you enter Class D; then you need clearance for a transit which will be authorised according to what you ask for (VFR or IFR) and you need to be clear about that.
In general you are more likely to get a radar service if you call up some radar unit as "IFR"

But slick radio will also help.
What are the DH/MDH minimas for an IMC holder. For my test I was told to add 500 ft to the published minima + the Pressure Correction error for my aircraft. Does this still apply?
No, that's standard CAA disinformation. It's a recommendation, like so many things that take up bandwidth on pilot forums. The law (the ANO) does not restrict an IMCR holder over an IR holder on the minima. You need 1800m+ vis for departure or landing (or better if the aerodrome has its own vis minima). There are some extra SVFR privileges over a plain PPL but I never (knowingly) use SVFR so I don't know them.
Now, to fly an ILS down to 200ft you need to be pretty good and current, not the usual UK 10 hours/year average PPL (or whatever it is), as well as flying something a whole lot better than the standard piece of rental junk in which half the panel is duff - but we are talking legality here, not practicality
When you ask for an IFR clearance through some bit of airspace, on occassions you will be offered a transit through Class A. You have to refuse that with something like "unable to enter Class A" - they will then realise you have an IMCR and not an IR. This is rare however.
From your post, it seems there are some very large gaps in your knowledge
His instructor's knowledge, evidently.
you may fly IFR outside controlled airspace, using any combination of approved navaids
There is no specification on how navigation must be done, on private flights in the UK (or anywhere else I know of), VFR or IFR. It's true that IFR pilots tend to use GPS backed up by navaids i.e. VOR/DME and ADF and plan the route to use these as much as possible.
You must file a flight plan if you are crossing the UK FIR boundary
Perhaps worth a mention that one doesn't need an FP between England and Scotland for example, even though one is crossing an FIR.
and also if you plan on flying on airways
You must mean the very few bits of airways which are in Class D.
Would ATC treat that as an airway or as just a piece of Class D into which somebody who has just appeared (don't forget the IFR FP will not generally be addressed to enroute ATS units) has asked for transit of, along a route which just happens to be an airway higher up?
For Class D, no need for a filed ICAO FP. The IFR clearance request/granting is equivalent to filing an
airborne FP. (One can do that for Class A too, on some occassions, with a full IR).
The plane needs to carry quite a bit of
working equipment to be legal for IFR in CAS. I am sure the majority of rental spamcans are illegal for IFR in CAS.
As to realities:
I would suggest planning the whole flight as IFR right from the start
IMHO it is sensible to plan every A-B flight as IFR, and regard VMC enroute as a bonus
One nice advantage of flying IFR is that ATC doesn't ask you to go to some VRP which nobody except the local sheep farmer knows where it is (the "Nokia Factory", etc). You can navigate using IFR waypoints: navaids, airways intersections.
Whilst I would never look to intentionally use my rating in anger
Why not? You have the legal privileges; you paid for them, so use them. A bit at a time, with another experienced pilot perhaps, then some more. All those old farts who say it is a "get you out of trouble rating" etc etc should be drawing their Civil Service pensions by now.