Hey there @mariapavs !
Thank you for reaching out to the Community with your questions!
I want to start by saying that the CTY line of bikes are great! Unfortunately, as you suspected, you really run the risk of feeling a bit too cramped on the step-through series. You are right that the recommended height max on the medium is indeed 5'9". From experience, I will say that even at my 5'5", I have often sized up on a bike vs. sizing down. You do get a greater range with the standard CTY bike vs. the step-through.
With that being said, if your heart is set on a step-through bike, we can do some research and see what might be a good fit. I'm going to tag my colleagues @REI-BryanV , @REI-GregM , and @REI-JimL so they can offer some suggestions as well!
To answer your question about the differences between the 1.1 and the 2.1, it is mainly about components. The 2.1 uses some more advanced (for lack of a better word) components when compared to the entry level 1.1. For many folks it may not be of the upmost importance even, but it provides some options to you as the rider. Here is a handy side by side comparison that illustrates the differences. Specifically on this bike you will see differences in suspension, brakes, brake levers, and even the bike saddle.
I hope this helps and that we can help you find the right bike!
I will also mention that one more option available to you, outside of the Community is virtual outfitting . This option can provide you one on one service and get you fully geared up!