Although having studied calculus of variations and lagrangian mechanics, something I've never felt that I've fully justified in my mind is why the lagrangian is a function of position and velocity?
My understanding is that the lagrangian characterises the dynamics of a system in its evolution from one configuration at time $t_{1}$ to another configuration at some later time $t_{2}$. Before considering the actual physical path taken we would like the lagrangian to be able to describe all possible trajectories between the two (fixed) configurations. Therefore, for any given path $q(t) $ chosen we are free to choose any velocity $v=\dot{q} (t)$ (as we are considering all possible trajectories between the two configurations, that satisfy the boundary conditions). As such, before invoking any variational principles, we are able to treat position, $q(t) $ and velocity, $\dot{q} (t) $ as independent variables. However, once applying the principle of least action and thus choosing a specific path, i.e. The one which gives an extremum to the action, $q$ and $\dot{q}(t) $ are no longer independent (as $\dot{q}(t) $ is dependent on the chosen extremal path). Indeed, we find upon varying the path around this extremal, that they are related by $$ \delta \dot{q}(t) =\frac{d} {dt} \left(\delta q(t)\right) $$ i.e. The variation in the velocity is equal to the time derivative in the variation of the position (as one might intuitively expect).
Is this a correct understanding and description? If not could please could someone enlighten me on the matter?! Thanks.
As this would be too long as a comment let me try to answer.
"As such, before invoking any variational principles, we are able to treat position, $q(t)$ and velocity, $\dot q(t)$ as independent variables."
No, I don't think so because by $\dot q(t)=$ is the time derivative of $q$, which is the only degree of freedom here. Mathematically you can't change a function and its derivative independently. The notation $L(q,\dot q)$ is understood as a function of two independent arguments evaluated at not independent points. $$\dot{(\delta q)} = \delta \dot q$$ follows.
Of course you are allowed to consider the mathematical problem with $q\rightarrow q_1$, $\dot q\rightarrow q_2$, but the physics behind it changes (2 degrees of freedom instead of 1).
Edit:
The action functional is $S=S[q]$, no need to specify what it does to the function $q$ (i.e. derivatives, ...), but it is a functional, not a function. The Lagrangian is a function, i.e. maps a "number to a number", not a function to a number. It is convenient to specify derivatives because you can then use standard analysis to make the expansion. You could write $S=\int L[q(t)] dt$ but then $L$ is a differential operator which makes the notation un-explicit, namely $\delta L$ is strongly dependent on $L$, whereas the equation of motion for $L=L(q,\dot q)$ are universal, regardless of $L$.
Of course one could think of many other functional, for example not local ones of the form
$$ S=\int L[q(t),q(t')]dt dt' $$
but the physics described by such model is very different, notably the notion of causality: what happens at $t<t'$ is sensible by what will be at $t'$ !