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I'm trying to understand the following:
There is a limited amount of mining reward for every currency and a precise amount is rewarded for every block a person wins per time. Since most people mine in pools technically the more miners or rigs there are in the world the less money an individual makes? Is this really how this works and if so how can it stay "profitable"?
Yes. More miners -> Higher difficulty -> Less chance of finding a block with a given hashrate -> less reward.
Long-term, it will only remain profitable for those who are more efficient than others.
Your understanding is correct. If it's hard to see how a system like this can be sustainable, just think about what profitability is. Since it's essentially (cost to generate bitcoin - amount of bitcoin received), you get a situation where the people that continue mining are those who find ways to lower the cost of their own mining.
