Nobody can say "it is never used". I've even heard people say it; however, it is a slight use though.. I sometimes see a narrator is using "watakushi". There should be many more cases it can be used. But people usually don't use it in daily conversation except when they are trying to be formal as a joke way( pretend to be formal).

It's a term of humility. There're lots of this kind of terms in Japaness, Chinese, and maybe Korean(although I don't know Korean).

It is not common in daily conversation, but I did hear it being used. One of the Japanese teachers I worked with always used "watakushi" as the translation of "I" when in class. I never used it myself though.