When used and maintained properly the composting toilets do really work great.
You can also use the compost from the composting toilet in your garden to grow food, vegetables etc.
Composting toilets when properly maintained and operated do not produce any bad smell or any smell at all.
However if you do not properly use the composting toilet or properly maintain your composting toilet then it can start smelling.
Yes toilet paper can be used in a composting toilet and the toilet paper will break down in the compost like the feces or poop will.
The toilet paper will compost in the toilet just like the poop will but the toilet paper will just take a bit longer to compost in the toilet than the poop will.
Just like toilet paper can be put in a regular toilet you can use toilet paper in the composting toilet and it will be just fine.
However the toilet paper will still be visible for awhile in the composting toilet because it takes a bit longer for it to break down.
Just don't put diapers, tampons etc into the composting toilet because diapers and other things like that will not compost.