One monster dies. That monster has a loot table I.E. what the base items are that it will drop. It will drop let's say 1-5 basic items from that loot table. Each person gets 1-5 random items from the table and they don't see each other's. Then your MF decides whether it's gonna be unique (for each item separately). If it's not, it's gonna roll for set, if not set, it's gonna roll for rare, if not it's gonna roll for magic, if not it's gonna stay white or grey (if they have grey in D3). The chances are higher and higher as you go down the quality, so if 5 items do drop chances are they won't all be white. This "1-5" is a hypothetical range to explain how it works, we don't yet know how many items a monster is likely to drop aside form what we can see from the beta, which is not a good representation of later acts and difficulties.
So yes each person gets a different set of drops from each monster, and their own mf affects their own drops. MF is a multiplies for the % chance that it will roll each quality of the item. I.E. if you have +200% mf, basically you have a tripple chance that it will be unique, if it's not unique u have a tripple chance it will be set, or rare, or blue, so the more MF you have the less "white" items you will see. So no MF is not capped at 100%, because even with 200% when the base chance of a unique item dropping is (hypothetically) 0.000153%, you still have a very small chance of getting a certain unique item, but nonetheless a tripple chance with 200%.
I wonder how mf works with followers though. Blizz has not yet clarified this. In D2 anything u killed counted ur mf, anything ur merc killed counted ur mf + ur merc so it was beneficial to let the merc get the last hit on a boss if he had mf.
That was a lot of.... words.... I hope it makes sense to u guys lol, it's as clear as I can explain it.
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Hope I clarified loot drops and the basic workings of MF for you guys.