"would this config shape the connection to 10Mb first then provide the specified LLQ within the nested policy-map?"
In theory it should. In practice it seems the shaper makes its own flow queues; haven't found specific information when it exactly pushes back into the child queues. (Somewhat similar issue to tx hardware FIFO queues need to overflow into defined software queues.)
"According to the "shape average 10000000 ?" command: "Recommend not to configure it, the algorithm will find out the best value". Does that mean that traffic will burst as the router sees fit?"
What this generally means is, allow the command to default the burst sizes. When working with realtime traffic, especially voice, the defaults might need to be reduced.
PS:
If you really wanted to limit 100 Mbps Fastethernet connection to 10 Mbps, I've found it better, if possible, to down the speed to 10 Mbps physically and just use the policy (QOSPOLICY) without a parent shaper.