What are your respective experiences with Python and LabVIEW? It seems that you are more proficient in the former than in the latter. If so, looking at built-in examples might help (Help>>FInd Examples).
Answer 1: the way the Python node is designed requires a function to call in your script. You can have several functions in a script, but you would have to call the Python node repeatedly, one function call at a time, or those functions would have to call each other within the script. Not that this is what you are asking for, but that might clarify the node's intent.
Your first snapshot doesn't show any node output. If you want to get something back into LabVIEW, that is missing. If I understand what you are trying to do, you would want your Python function to return something like an array containing your image.
Answer 2: the easiest way would be to use a Picture control to display the image array returned by the Python node. More expensive (the toolkit is not free) would be to use the Vision Development Module, which in addition to a more advanced control, would offer a number of utilities to manipulate the image.
HTH