1. Drawing an image on the background should be done with GameWindow.DrawBackgroundImage.
The image will stretch to fit the GameWindow size. So you should produce a larger image with blank areas.
Another solution is to treat the background image as a sprite.
2. Spr1 and Spr2 are Sprite objects added from the Tools menu: Tools - Add Object.
You could see the complete list of objects in the right pane (on the desktop).
I recommend you to read the GPS tutorial as it explains this topic:
http://www.basic4ppc.com/forum/tutorials/1093-gps-application-part-i.html