1) The pilots are given the choice of retiring (it isn't called being fired) but airlines are obligated to allow them to continue by training them in a new aircraft type or, more often and if possible preferably, in a new version of the current aircraft.
2) The aircrafts are flown to various remote locations for one of two purposes: 1) Dismanteling; 2) Storage (forever or for future use). Those which go to dismanteling are described quite well in one of the other reponses. They sit, often for years, while others in line are digested, unless there is a demand for parts. All valuable entities, mechanics and computers, are removed. The tires are often deflated or removed entirely, and the engines are almost certainly taken off (engine fan blades are coated with a material similar to diamond to prevent things from easily chipping them). The airline's logo is painted or stripped off. Seats and other casual interior decorations or passenger facilities are sold to anyone who will buy them as they are needed, but can be found in great numbers in land fills (I always thought if I got rich I'd take up a collection and start myself a regular aero-theater!). The fuselage itself may not be touched, but once everything inside is finally out, it will probably be torn apart (broken up) so that the metal can be re-used. Wings are a more difficult manner since they are made of composite materials, and thus are frequently left alone to sit in heeps somewhere.
Those which go to storage can be found by the scores in desert facilities such as those at Mojave. Their windows are blocked, valuables removed, logos painted off, and they are left (usually with wings and landing gear attatched) to sit and bask in the sunlight until time should see them go. Some of them are left in-tact so that second, third, fourth, or even fifth-hand airlines may purchase them.
IF ANYONE READING THIS KNOWS HOW I CAN ACQUIRE A FUSELAGE, PLEASE LET ME KNOW, I AM DESPERATELY SEARCHING FOR A 747-100 FUSELAGE TO PURCHASE AND DON'T KNOW WHO TO CONTACT!