1) Anywhere in C:\Users\yourusername\Documents\My Games\LegendaryHeroes\Mods\Gfx\
2) Useless in this case, it is used for heroes that have upgrades to traits like Lethal 1, Lethal 2, Lethal 3. Instead of showing all 3 traits, the unit will only display the last one.
3) Yes, alter the <Type> to anything you see fit.
Keep in mind the AI isn't going to use these traits unless you make up new unit designs for it to use.