The media pack Fritz1.pk3 goes into the same place Fritz0.pk3 does.
1. The media pack has new models for ammo/health, and new skins/models for players, as well as the Fritz theme song. If you not seeing any of that, you installed it into the wrong place.
2. Yes you can - when you select LAN, the game closes then starts up in console mode, and you'll have to connect to it by starting up another instance of Fritz, and typing "connect 127.0.0.1" if the server is on the same computer your playing on.
For more detailed information, check out the FritzBot users guide here:
http://wiki.bots-united.com/index.php/FritzBot