Where and How do I put i NPC's?

Okay, series of question:

1)NPC's. I have no idea how to place them, needless to say where they are.
Where are they?

2)How do is set where they go?

3)How do I incorporate a story?
I mean, what do I have to do to make text, etc...To make a good game.
4)I downloaded some sprites, and when I try to import them, it says invalid image size. Why?