So you hit 'Y' to set an item as a favorite. Then when in the favorites menu I noticed that you can place a number, 1 or 2 next to an item (I know that on PC you can set 1-8). My question is what do these numbers default to? If I set 1 next to an item what hotkey does that equate to on the controller?

Left and right on the d-pad, so on the Xbox you can only have 1 and 2.