A1. It is indeed what the command does. I believe chaosmonk suggested that directory because he has ~/local/bin listed in his PATH variable. At least, that is what I get from "After this you can run "icecat" in a terminal to launch Icecat". But I actually believe he added that path. 'echo $PATH' does not include ~/local/bin on my system.

A2. It creates/overwrites the file ~/.local/bin/icecat with the line "/home/$USER/icecat/icecat". In this way executing that file will execute /home/$USER/icecat/icecat (the shell will first substitute $USER with your login).

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