Bryan,
If, I understand you correctly you are adding an additional 7/16 sheet of plywood over the existing 5/8 plywood. If I read this correctly then you are building up a sub-floor that is a total of 17/16 or 1.06 inches. That should be plenty as you really only need to clear ¾ for a strong sub floor. If the existing floor is 5/8 then you could possibly get away with ¼ as that would translate to a 7/8 floor or .87 which is over .75 or 3/4
Quote:
Should I flatten the sub-floor before putting down the underlayment?
Is the under-layment the additional plywood that will be laid? If so you have two options flatten the existing plywood and lay the second layer over it or you can try laying the next layer with either a joint offset or in a 90 degree rotation from the existing floor. This will sometimes eliminate seam imperfections but if you have imperfections that are not related to the seams then you will have to address them before you lay the second layer.
Quote:
If I flatten the sub-floor BEFORE installing the underlayment, can I use something like Ardex, or should I still use felt?
You could use a leveling compound like Ardex but if you hit it with a screw it is going to crack. I would use felt or shingles to shim the area.