When you want to install a patch, all you do is unzip the contents into your LFS folder. If it asks you do overwrite, you choose yes. Usually the LFS.exe is replaced and a few other folders and files.
And when you start up the game, you should see at the bottom what version you are running (under the LFS logo and beside the developer's names)
And when you get setups, you put them in your LFS/data/settings folder. When you load up the game, you want to select, in the garage, the correct car the setup is made for, and on the right-side you should see the setups you downloaded. Click on one, and your car will use that setup.