I understand that it seems wrong since it's basically two people pitting animals to fight one another and betting on the outcome, aka winning money at the end. It's not so bad, though, I mean, it's not real.
I always found it interesting how the pokemon would never fight trainers, but only the animals. If pokemon have minds of their own, then it'd make sense for them to defend themselves. They would have never been domesticated... Wild pokemon should be more territorial, etc.
This is touched upon. That's why you can't go in the grass without Pokémon. When all your Pokémon are knocked out you make a break for it to the last town you were in, etc. And animals can still be domesticated even if they're violent (e.g. dogs). It's probably harder though.