The day pass will allow you to use any form of TTC transportation (subway, bus and streetcar). I'm not sure about those three options though--I've never actually needed a day pass. Just walk up to a booth and ask the operator for a day pass. Just make it clear you're by yourself all day (I assume) and they'll tell you which one to get.

Keele is closer than Islington (the subway ride to downtown is probably around half hour, but not sure about that one), and Keele and Bloor is a fine area.

The subway/RT hours of operation on weekdays and Saturdays are approximately 6:00am to 1:30am, and Sunday service approximately 9:00am to 1:30am. Different buses have different hours. There's also an all-night bus along Yonge St. and a streetcar on, I think, Queen St.

Here's a subway map. The TTC website also has some other maps and schedules and such.