Welcome to the AA forum. You'll find answers to many of the basic questions like this in the FAQ at the top of the page (where it says "Please check here first"). There are sections for upgrades and lounge access.

The answer to the first question is that it will include the domestic segments. Up to 3 total segments on a single upgrade award.

Not sure about the details of the lounge access rules, but they're in there

Cheers.