Both Analog Devices and TI make a variety of voltage to frequency converters - just google "V to F converter" to get several links.
I've used the Burr-Brown (now TI) VFC32 - it does both voltage to frequency and frequency to voltage conversion.
If you are only concerned with the amplitude of the 50 Hz signal, and not its instantaneous value, I would first rectify the signal, to get the peak voltage, then apply that voltage to the VFC.
Is amplitude of the waves modulated by the amount of current?
The amplitude of the current signal is half of the difference between the maximum and minimum of the current in each cycle of the oscillation.
For example, if the current over time is described by the equation
$$i(t) = A \sin(\omega{}t+\phi)$$
then A is the amplitude of signal because the current oscillates between +A and -A (and A has units of amps).
In the circuit shown, there is nothing modulating the current. Modulation happens when some other signal (like an audio waveform) changes the amplitude (for example) of the current waveform. This would require a more complex circuit than what is shown in your example.
Frequency is modulated by the frequency of the capacitor release of energy, correct?
Again, your circuit shows no mechanism for modulating the frequency. If you used a variable capacitor and the capacitance was controlled by another signal, that would cause frequency modulation. But it would probably also cause some undesirable parasitic amplitude modulation. To see some typical frequency modulator circuits, you can do a google image search for "frequency modulator" and look at the schematics that are found.
That would mean that using a capacitor with a lower farad rating should produce a higher frequency?
Generally the resonance of an LC tank circuit like in your example is given by
$$\omega_0=\frac{1}{\sqrt{LC}}$$
So the oscillation frequency can be increased by reducing either the capacitance or inductance value.
How would one go about keeping a sustained current to the inductor since it's constantly losing current without messing up the cycle?
You can use an oscillator circuit. Generally this means adding some kind of amplifier to the circuit to add energy to the waveform as quickly as it is lost to parasitic resistance and to feeding the load.
Best Answer
Well it does matter a lot actually.
The only difference between a mathematician and an engineer is that the former would say:
"Yes, at 0 amplitude there will be no signal"
while the latter would say (possibly opening a beer can):
"Yes, if amplitude is below a certaing level your transmitter is useless"
The question you are asking is actually quite vast, you can get a degree in telecommunications, at least in Italy, but I'll try to stress the most important points.
Power
Power is proportional to amplitude squared. The more power, the more range, the more range, the happier you are. When you communicate via ideal apparatuses amplitude determines only the range: your receiver has a minimum power requirement, you know how much power you are sending, and you know that power decays with the distance squared. If you are close enough power does not matter... Theoretically. We don't use big ass transmitters as you suggest becaues when you exceed a certain amount of power your transmitter becomes quite difficult to be built, mantained and operated. And I bet efficiency drops too. So that's why we use many little transmitters spread on the hill tops. For the records, I believe 10kV is quite a common voltage range for transmission stations.
What we need to do now is ask: why is there such a minimum power needed to receive the signal? The secret lies in the SNR, namely the "Signal to Noise Ratio". Demodulating an FM signal is not a trivial task, but let's assume that you are doing so measuring the frequency deviation per each period received, i.e. you have a stopwatch and measure how long does it take to your signal to go from one maximum to the next one. You write down all the values you get, and you've rebuilt your original signal (some math needed but you pretty much have it). Now what happens if you look close? I hope you did see a signal on a scope at least once: you hook up a signal generator directly to your scope and see a nice sine wave waving at you, but if you look closely you see the bad guy: noise. White gaussian zero-average thermal-or-whatever noise. The problem is that electrons are ruled by statistic functions, so they don't always behave as you think, and you end up with a tremulous line instead of a nice one:
That kind of shaking is superimposed (aka summed) on your signal.
Luckily enough your sine wave amplitude is way higher than the noise peak to peak average amplitude (note the average word). When you measure the distance between two maximums you don't even see the fact that the maximum is not a maximum but is full of up and downs. But what if you go down in amplitude? What if you set your transmitter to use let's say \$v_{tx}=2v_{n-pp}\$ where \$v_{n-pp}\$ is the noise peak to peak average amplitude (you guessed it didn't you)? Well now measuring the distance between two peaks is difficult if not impossible, so here is where the minimum power requirement come. That actually is a requirement on the SNR: what matter is not signal power per se, but signal power over noise power.
So that was for your first question. Please note that power depends on the transmitter power but also of what happens in the middle: a nice antenna means more power in the air, less power dissipated on it. A nice path, i.e. free air, means less power dissipated bouncing between skyscrapers.
About the close receiver: when your SNR is over a certain amount improving it does not really make a difference.
I don't think you can turn a radio transmitter in a tesla tower unless you are a very bad designer.
Yes, higher amplitude (read higher power) means better spread.
How far, how close... Well we communicate with space probes quite far from earth. That is possible because the antennas used are very directional, that means they concentrate the transmitted power along a line instead of spreading it all around, so the power density in front of these antennas is quite high. The probe have a directional antenna too, so quite high ranges are achieved with human amount of power.
How close? Some microwave radar antennas can be quite dangerous also if non ionizing and are usually fenced and guarded. No fancy sparks though, only heat and possibly cancer.