1) How do I connect the old Airport Express (A1088) with the new Airport Extreme (tower)
AirPort Utility 6.3.1 in Lion and Mountain Lion does not support this older version of the AirPort Express.
You will need another Mac that is running the Leopard or Snow Leopard operating system, or a PC to be able to configure the old AirPort Express.
The older Express could be configured to "join" the AirPort Extreme wireless network....not extend....so that you could use a remote printer or AirTunes.
IF.....you connected the old AirPort Express to the AirPort Extreme using a permanent wired Ethernet connection, the Express could be configured to provide more wireless signal coverage that way.
If you do not have an older Mac or a PC to configure the older AirPort Express, some users have reported that they are able to use a fairly involved workaround to install an older version of AirPort Utility on a Lion or Mountain Lion Mac.....not supported by Apple.....so there are no guarantees that this would be successful. Post back if you want more details on this possibility.
2) Can I use my old Airport Extreme and connect it via WiFi as a network extention?
I think you probably meant to say old AirPort Express here, correct? If yes, the older version of the AirPort Express that you have is not compatible with the new AirPort Extreme for this purpose.
You would need either the A1264 or A1392 version of the AirPort Express to extend the signal from the new AirPort Extreme via WiFi. If you want full 802.11ac capability on the wireless extension, you would need to use another new AirPort Extreme 802.11ac to extend the network.