Can I use a gift card for an in app purchase and how

You can (not sure if auto-renewing subscriptions can use a balance in all countries), if you haven't already done so redeem the gift card onto the account and tap on what you want to buy - how items are billed is automatic, you can't specify how an item is paid for

Your balance/credit from gift card will always be the primary payment. Apple will use Credit Card only when it needed.