Unless you have evidence that the rest of the universe, outside of our solar system, is just a wall painting and not actually there, the current indication would be that the simulation encompasses the whole universe (if it is one).
Yes(ish). We have world simulators, that are used to study the atmosphere, global warming, weather, etc. They simulate the entire Earth but probably fit within a regular desktop computer.
The nice thing about data is it can be represented by very small particles.
If you have a universe with 10^1000^1000^googleplex particles, it wouldn’t be too hard to create a machine with enough RAM to represent 10^1000^1000 particles.
If we’re a simulation, the only thing we could infer is that the parent universe is larger than ours by a significant amount.
Evidence that we’re a scientific simulation rather than, for example, a holodeck simulation for entertainment. Though, in the interest of the holodeck, presenting a realistic universe could still be a goal. Neither you nor I have any evidence that the scientists reporting about the larger universe are telling the truth. All science news could just be copied reports from the real universe, created and distributed by non-AI NPCs.
As the OP mentioned, we could just be brains in jars, with all of the sensations and information we encounter being faked.
Why bother simulating anything at all?
It’s just going to depend on what the goal was of the person who developed the application and/or the person who’s running it. Possibly science, on the interaction of quarks, on the possibility of emergent structures in a random environment, or entertainment.
It’s likely that Earth is just a side-effect of the science.
It’s what we’ll call it when we create such simulations ourselves.