It is out of date in Poland now, although still heard in some villages.
Exactly. It used to be used. Now you use just "Pan"/"Pani"/"Państwo" as a formal pronoun. Forget about "wy" in this use, unless you are reading a novel or watching a movie with the action taking place in the past.
It's simple and easy. If you are talking to an adult person you don't know, you use "Pan"/"Pani"/"Państwo". Otherwise - "ty" (which is usually neglected in the sentence, you know it's "ty" from the verb form).
Some people have traditional titles. But it's not an issue of personal pronouns, rather of beginning a talk to such a person. You don't ask a university teacher (of the PhD degree):
"Czy może mi pan doktor polecić jakąś książkę, z której można przygotować się do egzaminu?"
(Can you recommend me a book, with which I can prepare for the exam?")
"Panie doktorze, czy może mi Pan polecić jakąś książkę, z której można przygotować się do egzaminu?"
or, if there was already a question with "Panie doktorze..." (meaning something like "Dear Doctor...") earlier during the same talk:
"Czy może mi Pan polecić jakąś książkę, z której można przygotować się do egzaminu?"
It's especially important in case of the university teachers. Some of them (not all) feel offended if you don't address them with their title (and you should always use the proper title, like "profesor", "doktor", "magister", if he's the faculty dean, then "dziekan"; if a person has a few titles, it's enough to mention the most important one, if it's, for example, a vice-dean ("prodziekan"), you still address him as "dziekan", not as "prodziekan"). Similarily in case of a president of a bigger company ("Panie Prezesie..."), or in the government and parlianment ("Pani Minister...", "Panie Prezydencie...", "Panie Pośle...", "Panie Prezesie..." to a boss of a political party - you can hear such forms all the time on TV in the news).
While talking to a doctor (medical doctor in a clinic or hospital, not a person with a PhD title at the university) or a pharmacy employee it's not so important to call them "doktor" or "magister", even though it's still a kind of tradition. But it's nothing unusual. People, especially older ones, still do so. I think, it comes from the times when there was not so many people with higher education, then it had to be usual to call all of them with the title. And a doctor or a pharmacy employee were the only such people with whom an average person had some contact. Maybe also a lawyer, in case of whom the traditional form is "Panie Mecenasie...".
Also "profesor" is a title used with respect to the teachers in high school (but not primary school), although they don't ususally even have a PhD title, not to mention the title of a professor.