Buying tickets at every station I am is not the best way,that I know for sure.
Actually in some cases it does make sense to go with point-to-point tickets option - Swiss Railways have very good offer called SuperSaver tickets
(--> basically 50% discount on regular ticket price). However in other cases indeed pass will be a cheaper option.
I am most interested in visiting Geneva,Lausanne,Bern,Zurich and Lucerne. Does Interrail connect them?
Yep, interrail works for all the major lines, it's not valid (or requires extra fee) only on certain private railways. Your itinerary doesn't seem to include those, thus you should be fine with Interrail pass.
Interrail for 8-days travel in 1 month is 141 euros for me, Swisspass for 8 days is 289 euros and Swiss half fare card 112 euros. Should anyone here knows something about these "long-term tickets" or has traveled using them, it would be extremely helpful.
Well, Half-Fare travelcard is mostly for locals, since it pays off over longer period of use (=big number of journeys), SwissPass mostly for non-europeans & those who want to enjoy extra perks it gives (free travel on public transport in cities/towns, entrance to museums, etc.), while interrail is indeed the cheapest option, especially if you eligible for youth pass or family pass.
p.s. if you do decided to go with interrail pass option, then make you sure you purchase it not from some reseller agency, but directly from interrail - www.interrail.eu
or, judging by you ip, you can do it also at the international ticket counter in your country.