RPM stand for Redhat Package Manager. It's Redhat's default way of installing software.
Is an RPM programmed such that the files "know" where to go? Will the RPM create new directories as needed; replace older or conflicting files; put the necessary files in the right directories?
Yes, to install a package use:
rpm -i packagename
To upgrade a package use: (also installs the package if it is not previously installed)
rpm -U packagename
To query if a rpm package is installed use:
rpm -q packagename
To delete a rpm use: (you first need the full name, use query for this)
rpm -e packagename
there the options your most likely to use, read the man pages for the others.
Yes it does put the files in the correct directories.