What is the intent of this fusion? Combat usage only, or usable at any point? The text states that the fusion can be activated as a full action in place of a standard attack (though, I think that should be either standard action or full attack), and that successful activation allows the wielder of the weapon to cast the spell in the gem as if they were a spellcaster with the spell on their class list. Nothing in the fusion or spell gem rules restricts what spells can be used, and there is no guidance or restrictions as to a target. Does this fusion allow a spell like Life Bubble? Resistant Armor, Lesser? Can I attack an object to activate the fusion?
I think it lets you cast it out of combat, and that should in fact be the preferred method. It's basically a wand in weapon form that lets you change what one use spell you can cast.
The answer to all your questions is yes. You can just use it. I feel like this fusion is largely meant to replace wands, scrolls, and UMD, so I'm pretty sure you can fire non-lethal spells and what not.
It might be hard to explain to the guy why you shot him with charm person, though.