>Can VFP call 'C' functions from the library?
>If yes, how do I go about setting the environment
>and calling it? (eg. INCLUDE stdio.h , etc)

Yes. You have to use DECLARE command form 32-bit DLLs, or FOXTOOLS.FLL, RegFn,CallFn for 16-bit DLLs.
You can include any file into form (click form/include file menu in form designer), but it's more reliable to open this file in text editor, check needed variables=values (which you are going to pass calling a function), and use real values instead of these variables.