Yes, you are correct that your Phase 1 submission plan could be a design concept. However, whatever you propose must be something that can be successfully developed and demonstrated within the 10-month Phase 2 development window. As part of your phase 1 submission, you will be asked to provide a realistic project plan for the Phase 2 development period.
You have also correctly identified the prize amounts, with the addition of the $50,000 prize amount for the Phase 3 winner. Some teams are likely to look for additional funding sources if it is required to mature their technology.