Can you set up a conference to have more than 2 divisions? If so, how does the game handle conference championship games?

Don't know if possible, either the developer will have to confirm or you can try it. As for conference championship game, you have the option of turning that off on the Conference line within the Teams.xml file. Otherwise, if it is allowed, not sure what logic it would use. If your not aware there is a Slack channel where the developer answers a lot of questions, recommend joining that and you would be able to hear answers directly.

Only 2 divisions will work