Hello,
Will course backup/restore with user-data able to create missing users on the second site?
Yes.
What if courses/ users already exist in a new instance?
As far as I know, if a course already exists, a duplicate course will be created with 'copy 1' appended to the name. However, if users already exist, duplicate users will not be created.
Will backup/restore include submission files (like images)?
Yes, when you backup with user data.
Is there any other better solution for merging data on two different moodle instances?
I think the solution you mention is the best, though before you create the backups, you may want to upgrade your 2.8 site, as a lot has changed between 2.8 and 3.9.1!
What precautions need to be taken before/while proceeding with backup/restore?
It is recommended to put your site into Maintenance mode and create a Site backup.