Yes, the bull gains confidence when it is able to make contact with a padded horse. It also helps to tire the tossing muscle causing the bull to lower its head and concentrate its charge, making it a bit easier for the matador to control the animal during the final phase of the fight.
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The only time a bull is not killed in a bullfight is when the animal receives an indulto (pardon) for a particularly good performance. This is to prevent the animals from being used again in another bullfight which would be extremely dangerous for the matador.
I would think... they would be eaten. Unless there was some cultural reason to honor the bull with a proper burial.
The bulls are butchered and the meat is either sold to a specialty restaurant or donated to charity. It is not wasted.