It is, but only indirectly. New factory techs take longer to research, which means, that it takes much longer to increase your production capacity.

The game option is about research only, so I don't think, that it should affect production too. Adding an additional option for production speed? Sure, I can see that, but not for GalCiv 2. You will have better luck suggesting it for the sequel.

We can't mod how that option works, because it is hardcoded. However, you could give MarvinKosh's Space Weapons Fix mod a try. Both production and, especially, research is slowed down in his mod. Production is primarily slowed down at the beginning, because you start out with only a few Super Projects, and it takes quite a while until you've researched your first factory tech. Getting to the next one will also take some time, because they are all split up, and have several prerequisites before them.

Yes. I can see two way of doing that. The first is, to reduce the production of the colony and all factory improvements. That will require editing the PlanetImprovements.xml. The second one is, to apply a 50% penalty to the Social and Military Production abilities of all races. That requires editing the RaceConfig.xml.

In both cases, you need to make a copy of the file and put it in a mod-folder. That way, you can make sure, that you can easily go back to the original state, if something goes wrong. You can find a default mod-folder under Mods in the main directory of the game. Either use that one, or make a copy of it. The necessary files are under Twilight\Data\English. To edit them, you can use a text editor.

Not as far as I can tell.

One way to slow down the game is to reduce the number of inhabitable planets, especially the ones that do not need research to colonize.

That is, with fewer planets, each empire has fewer units of everything, including production.

Note, however, that fewer planets to colonize means that the colony rush era of expansion will conclude sooner.  This, in turn, means that the AIs will turn to war sooner.  However, it also means that the wars will be fought with lower tech, including smaller ships.  I tend to find this effect interesting, BTW, as I am jaded of wars fought solely by huge ships in large fleets decked out with max weapons and defenses.