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The sheriff isn't really with the powder gangers, he just laid low during the revolt and stayed in the prison to wait out his sentence till the ncr takes it back.
In Fallout 3 karma meant which companions you could recruit but here faction takes that spot.
-So I believe in order for him to become sheriff you have to get him a Pardon from the NCR. He didn't assist in the breakout but he hasn't left the prison because he doesn't want to be an outlaw. The sheriff, Meyers, was arrested because he speed up the wheels of justice too many times. The location the sheriff is a prison controlled by the Powder Gangers, from what you say later in the post you killed Joe Cobb and his group of Powder Gangers. That's why they attacked you on sight because by killing a few of their guys you're now that factions enemy, same thing will happen if you shoot a few NCR troopers or shoot up a casino.
"Isn't red supposed to be a BAD thing? From what I gather, any time an option has been highlighted in red, it's been a clear "bad guy" thing to do. Usually stealing or something. I do not want to lose Karma and be labelled as a bad guy."
-So an option displayed in red generally means that it's something if you're seen doing will get you in trouble. Say for example at a highway camp the tin cans on the ground are in the default color because the item isn't marked as owned by anyone but the beers behind the counter are because someone owns it. The other posts on this thread explaining that theft always gives you negative karma are correct and unfortunate. I always felt like stealing from Caesar's Legion ought not to give negative karma for obvious reasons. The karma lost from theft is relatively low so you can afford to steal the ammo they keep in that room and have your karma be positive.
"Finally, I go to save the Sheriff, and he says that he would pay for his crimes, fair and square. Wait, what? What did he do? Why is he apologizing? Isn't he a good guy? Isn't he being held captive by gang members here?"
-Somewhere an NPC says that Meyers (the ex-sheriff in the NCRF) got arrested by the NCR for taking the law into his own hands and not following proper procedure too many times. I assume they mean he saw a guy steal and instead of locking him up shot the guy, something like that. None of the choices for New Sheriffs are bad or good really, NCR brings taxes, Primm Slimm brings robot logic to law and Meyers from what I remember tries to be more formal with his policing but still has the occasional vigilante justice.
TLDR For you ending questions:
-The sheriff skipped proper legal procedure too many times, which I think is understandable due to the state of the world, and was arrested for it. Being a true lawman he doesn't want to just break out and wants to pay his debt to society. He isn't an evil man so no not a bad thing
-Theft in Fallout New Vegas always rewards bad Karma. It's an underdeveloped mechanic.
-Red Text generally means that doing that action will make everyone hostile if they see you do it, even if they are already hostile because they could have not been. Your choices in the starting quest in Goodsprings antagonized the Powder Ganger's faction. If you hadn't done that you could have bribed the guard to get let into the prison and they would have been neutral with you. If you opened that one door while they say you they would have become hostile.
-Theft is always a karma loss if it's an Item but opening red marked doors normally doesn't give a Karma penalty (I think).
My last word of advice is not to worry too much about minor negative Karma infractions like these. Even when I'm a good character i take the faulty negative karma hit to pick up the Powder Ganger's dynamite and ammo boxes because it provides very little negative karma points. Also consider, every time you kill a powder ganger you get positive karma, so the 20ish guys you killed outweigh the loss of the few items you might steal.
I hope this helps.