Devastate is 99% a replacement to Sunder Armor, and the 1% situation where you would use Sunder Armor isn't even worth commenting on.

Does Improved Sunder armor work with devastate?

Yes, when Sunder Armor is applied, the same exactly threat is dealt. It's just like using the actual Sunder Armor icon instead of Devastate. The ability Devastate consumes everything concerning Sunder Armor & applies everything in that regard as well.

Does Sunder armor deal damage?

Sundering generates a high amount of threat, making it especially useful for tanking. Not only will it help you keep your opponent focused on you instead of your teammates, it will also increase the amount of damage you and your party members deal.