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I am bit confused about the Biometric part of the citizenship application.

1. I currently I have a ILR. Do I need to include the ILR along with the application? If I get the documents checked by the local council ( document checking service) do I need to include the ILR along with the application.

2. Will I have to go through Biometric appointment during the citizenship application? From the application document it looks like there is a biometric phase in the application. When would this happen? Would it be after the application is sent? Will the home office contact me to schedule the biometric appointment.

3. Will I get the passport as soon as the citizenship application is complete? The application talks about returning my existing biometric document within 5 days of citizenship approval. Will I have the passport by this time.

1) I assume you are referring to your BRP, when you say ILR. If you are applying through an NCS, then they will send certified copies of necessary supporting documents (including passport & BRP) to the home office and return the originals to you.
2) Yes, you will have to enrol biometrics for naturalisation. The home office will send you a letter requesting you to do so once they have received your application.
3) You will need to apply for your passport once your application has been approved and you have taken oath at the citizenship ceremony. Their is a new requirement that you need to return your biometric residence permit within 5 days of attending the citizenship ceremony.

A separate note, to let you know that there are now a number of councils offering a joint citizenship and passport application service (JCAPS). Note however that this is still a pilot scheme, there is a topic related to this under this forum if it would be of interest to you.

Note that, in either case - NCS or JCAPS, you will need to return your BRP after attending the citizenship ceremony, and then wait for your passport application to be processed before you can travel.