If you have a full install it's better to choose a .pet. If you have a frugal install (with a savefile) you can choose either the .pet or .sfs, however the .sfs has the advantage of not taking up space in your savefile.
To uninstall a pet. Open the puppy package manager(PPM), there is small window at the bottom showing all pets installed. Just click on a specific entry to uninstall. (note: if you have installed the pupcomboplus.pet the PPM will look slightly different, there is an uninstall button at the top)
To install an .sfs (only for frugal installs) put the sfs in /mnt/home/ then goto the 'menu' then / system / bootmanger configure bootup. Press the 'choose which extra sfs files at bootup' button. Any compatible sfs files found in /mnt/home will be displayed and can be added to the boot list. Just click on it and press add. This is also the place where you uninstall loaded sfs files, by clicking on them and pressing remove. You will then need to reboot.
Note that if you install an sfs from quickpet, it may do all this automatically. You can check by looking in the bootmanager.
The .sfs files must remain in /mnt/home/ if you want to use them.