1. Why was Aristotle blocked from solving the riddle of value? He lived in ancient Greece, a society based on slave labour. Capitalism, on the other hand, is based on labour-power being a more or less standard social substance moving from one line of industry to another. Ancient Greece did not even have a word for labour in general. It had words for tilling, harvesting, carpentry, building, cooking and so on - but not for labour in general - because it had no concept of a social pool of labour-power in which all individuals participate more or less as equals.
2. The forms of value discussed in chapter 1 section 3:
The elementary form is the basic form of exchange-value, with two commodities exchanging in a specific ratio, e.g. 20 yards of linen = 1 coat. It comprises two components: relative value, with the value of one commodity, 20 yards of linen, being expressed as 'one coat', and equivalent value, with one commodity (coat) acting as the measure of the value of another (linen). The labour embodied in the coat is serving as a social approximation of abstract labour.
Unless 20 yards of linen = 1 coat is really an accident, the relation can be extended to the next form, the expanded form. 20 yards of linen = 1 coat = 10 lb tea = 40 lb coffee, in which the value of one commodity is expressed in numerous other commodities. The labour in the linen finds lots and lots of approximations of abstract labour to measure itself by.
Turn expanded value around, and it becomes the general form. 1 coat, 10 lb tea, 40 lb coffee, etc = 20 yards of linen. The linen functions as an equivalent of all other commodities, a universal approximation of abstract labour.
Where one commodity, e.g. gold, becomes the sole universal equivalent, we have arrived at the money form.
3. How does money represent labour? Money is the social expression of abstract labour. With a gold currency, the labour embodied in gold is taken as the social approximation of abstract labour. The social fact that labour produces all value is transmuted into the market fact that money buys all commodities.
4. What's wrong with the idea of money being a mere convention? Firstly, it is a complete historical fiction. There never was a 'general assembly' which decided to coin money to ease exchange. Second, more importantly, it glosses over the fact that money does a lot more than exchange. It spills out of exchange as well as easing it. It is a measure of value and store of wealth. It contains the seeds of capital.
Marx has political points in mind here. (a) Against socialists of his time who thought that the evils of capitalism could be fixed up by 'lopping down' money to the level of other commodities, e.g. by labour-money or free credit. (b) Against bourgeois economists who pretended that the emergence of money was a natural product of the natural increase in complexity of human society.