The film title Crouching Tiger, Hidden Dragon (臥虎藏龍/卧虎藏龙) apparently is an idiom describing a place or situation that is full of unnoticed masters. Is this phrase actually used in speech, and if so, how? I.e. Is is treated as an adjective, like "这里很卧虎藏龙", as a noun, like "这里有卧虎藏龙" or "这里有很多卧虎藏龙", or is it used in some other way?
Although we can assign "grammatical categories" to idioms(成语), in general they do not freely appear in syntactic locations that expect phrases of that category. Hence "这里很卧虎藏龙" and others all sound ungrammatical. In studying idioms it's important to pay attention to the typical structures in which they are used.
Here are some exemplars from idiom dictionaries that are immediately available to me.
新华成语大词典 p. 158
汉语成语源流大辞典 p. 138
From these exemplars we can observe:
- It can be used to describe a place: 藏龙卧虎之地；藏龙卧虎的地方
- Colloquially we may omit 是 and 的地方: 这北京城，藏龙卧虎。
- It can be used to describe a person as well: 藏龙卧虎之辈
- It can be used as an adjunct, to describe the status of a person: 藏龙卧虎，应该待时而动。
臥虎藏龍 is an idiom, a phrase. so rather than treating it as a part of speech treat it as its own unit-- just like in english an idiom "take it with a grain of salt" is its own unit, not an adjective or noun or whatever. And you just insert it into a sentence as needed for conveying the meaning. Here are a few example uses:
此地臥虎藏龍英雄薈萃。 in this place there are crouching tigers hidden dragons and many heroic people gather.
這場比賽選手個個表現非凡真可謂臥虎藏龍。Every single contestant at this sports meet excels, truly a bunch of crouching tigers hidden dragons.
Note this phrase has many variations like 盤龍臥虎、臥虎、藏龍臥虎 etc. they all have the same meaning and use (◐‿◑)
You're almost there with the example "这里很卧虎藏龙". So, roughly you can use it as an adjective. However, the conventionally established usage is to omit the adverb of degree 很 ("very"). Or, in rare cases where you really want to emphasize it, you can say 很是 (exaggeratedly stressed, literally = "very is") as an adverb of degree, although you don't need adverbs before the idiom. That's mostly because this idiom is already emphasizing the ultimate degree.
Try these sentences, especially feel the stress patterns:
- ✓ 这 里 卧↓ 虎 藏↓ 龙
- ✓ 这 里 很↓ 是↓ 卧 虎 藏 龙
- × 这 里 很↓ 卧 虎 藏 龙
- × 这 里 很↓ 卧↓ 虎 藏↓ 龙
If I have adequately expressed my idea, you should feel something not correct with the rhymes in the last two sentences.
In terms of grammar it's by itself a full sentence when used alone, and an attributive clause when used to describe something. Lots of Chinese idioms works this way, e.g. 众所周知，耳目一新，面目全非.
However, Chinese doesn't have a specialized grammar for attributive clause. An attributive clause in Chinese is grammatically (similar to) a multi-word adjective. So you are not really confused by the idiom, but by the way attributive clause works in Chinese.
这是一所拥有顶级专家的研究所 This is a research institute that has some top-tier experts.
这是一家卧虎藏龙的研究所 This is a research institute that lies dragons and hides tigers.
If you figure out how an attributive clause in English can be translated into Chinese, you would understand how to use those idioms.
If you use the definition "a group of words established by usage as having a meaning not deducible from those of the individual words" for idioms, 臥虎藏龍 is not an idiom. There are idioms in Chinese, called 歇後語, such as 高山滾鼓 and 王婆賣瓜.
For your second question, 臥虎藏龍 are sometimes used in everyday language.