I've run a similar fest for The X-Files, but I can't remember anymore if that was an original idea or if I stole it from somewhere :D

As for your questions:

1) Nope. Your contribution can be anything you want, including meta, as long as it has been created specifically for this community and hasn't been posted elsewhere before.

2) Yep. The episode you choose can be a favourite episode, or an underrated one, or just one that inspires you to create something for whatever reason.