You are able to install the 256 MB +in addition to+ the logic board RAM because of the RAM slot. (Did you read the page of instructions to which I linked? There are pictures. You will see.)
You will find that Panther (Mac OS X 10.3) will run much faster and better than Mac OS X 10.1.4. That is a very old version of the OS (almost a beta version), and there are many things you will not be able to do with it (particularly online) that you could do with with Mac OS X 10.3. Mac OS X 10.3 will run much better for you with the additional RAM.
No, Bloodrayne requires Mac OS X 10.2 or better:
http://www.apple.com/downloads/macosx/games/demos_updates/bloodrayne.html
You will find that most things will not work with Mac OS X 10.1, but this game also requires a 733MHz PowerPC G4 processor or higher. It won't work with your iBook G3 (Dual USB).
Maybe it would be wise to ask about something
before you spend your money?