Heres how it works
if each model has 2 or more wounds then for every failed armour save you must allocate the first 2 wounds to one model. you can not give one wound to one model and another wound to another model.
also yes your opponent can allocate his wounds to anyone in his squad as long as he does not spread the wounds out as in the above statement.
also lets say your opponent has a 5 man squad. lets say you shoot 6-infinite shots. since you have more shots then he has men you can allocate one shot to a certain member of the squad. such as a leader, or a heavy or speciel weapon.
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