I just managed to discover the answer to the question myself. I used an old iPhone 4 running iOS 7.1.1 and found an app that used to support iOS 7 but no longer does.
- Yes, users that bought/installed the app in the past will be able to restore it by using the "Purchased" section from within the "Updates" tab of the "App Store" app.
No, users will be able to find the app, but actually won't be able to install it:
- The app still appears when searching on the app store.
- The app states "requires iOS 8 or newer".
- The "Get" button is clickable, but they won't actually be able to install the app. Instead (after they've entered their password) they will be presented with an alert view explaining to them that they'll have to upgrade to iOS 8 (even though this is not actually possible on an iPhone 7)