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I've done plenty of remix competitions over my time and yes, they can lead to some potentially good things. Is it likely that you're gonna get it pressed and distributed across the globe? Well, that all depends on how much the artist likes your remix. Quite often, your remix will appear on a compilation or mixed cd by one of the label's artists.
Most remix competitions are pretty explicit on what your "payment" would be. Usually it's a nice little software package or gear to help your productions along. The nice thing about remix competitions is that it's a potential foot-in-the-door for a label. Providing that you keep in contact with them and pump out your own work that they like. This isn't a guarantee, though. And if you never get picked up by that label may not mean they don't like your work. It may be that they just can't afford to support another artist. This is common with smaller labels.
As for what they look for. That's a tough call. You really have to make a judgement call on that. Generally, I make that call determined on how much they send me to work with. If they send very little (a couple loops and samples) then it's obvious that they want it completely redone. Also, they usually state in the contest rules where you remix will be presented. If it's going to be a label compilation, you might want to stick with just tweaking the track a bit. If it's an artist mix (or artist comp) then you can likely get away with flipping the original upside down.
In my experience, though, I've found that is best to keep the basics of the track in place. Remember, you're "just the remixer". The focus for such a project isn't on what you can do for yourself but what you can do for the original artist. So sometimes, this means sucking it up and just reworking other's music.
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remix competitions
