LFE is the "Low Frequency Effects" channel of a 5.1 (or similar) soundtrack. It is the ".1" portion, which is a discrete channel of bass only.
You should probably use a line level (RCA) connector between the subwoofer output of your receiver and the line level input of your subwoofer. Set the crossover in the subwoofer to "bypass", or if there is no "bypass", then set the crossover as high as you can. Start with the level control on the subwoofer about half way up, and the volume on the receiver down low. You will need to adjust the subwoofer volume with its level control to match the sound level that comes out of your speakers.
Something like the Sound and Vision calibration disc would help you adjust both the audio and the video; it retails for about $20.
Use YPAO to adjust the audio, but double check the distances and the crossover settings, as well as whether it "thinks" your main speakers are "large" or "small". If your speakers cannot reproduce very deep bass, they should be set to "small". The crossover should be above the bottom end of the main speakers, but hopefully you can set it at about 80 Hz or lower.
Make sure you carefully read the manual for your receiver, and do what it says for adjusting things, particularly if you don't buy a test disc such as the one suggested above.
For speaker placement, visit Dolby's website.