1) An MLB team is rebuilding when it shifts resources from sustaining the Major League core it has built around in the previous seasons (present value) toward accumulating young talent which will ideally mature into a new core (future value).
Bill Smith's core was Mauer, Morneau, Cuddyer, Span, Delmon Young, Kubel, Punto, a rotation including Liriano, Baker, Blackburn and Slowey, and a bullpen featuring Nathan, Guerrier, and Crain.
2) Depends upon how much present value there is when the rebuild begins, and how advanced the young talent coming in is. The post-Puckett rebuild began in earnest after a 94-loss 1997 season with the trade of their most valuable asset (Knoblauch) for a couple of new core pieces (Milton & Guzman). They averaged 67 wins from '98-'00 before returning to contention in 2001. I can't think of many examples where a bad team brings up a new core of players much faster than that.
3) I don't think the current rebuild begins with Ryan replacing Smith after 2011. Injuries and regression left the FO with nothing of value to trade. The most valuable player from 2011 was Cuddyer, and they wisely let him walk in order to pay Willingham less for similar production plus a comp pick. Most of that offseason was designed around giving the returning core players a chance to rebound. For me, the rebuild begins when they turned their high draft position and Cuddyer's comp pick into Buxton and Berrios. Those guys being high-schoolers, that put a realistic date for them making a major league impact at 2016 at the earliest.
So, while we are witnessing our 4th straight year of way too much losing, we are only in our 3rd year of a rebuild we should be expecting to take 3-4 years. I think it's fair to expect the 2014 Twins to be winning more than they are, and for the 2015 Twins to be not bad (.500 seems like a reasonable goal). But contending next year? Nope, too early, probably not going to happen.