Generally, all animals in transit are processed through the animal lounge, no matter if transported as manifested cargo or as checked baggage. With a seven-hour layover, that's SOP., and yes, they will have the opportunity to get out of their crates there and are offered food and water. LH will charge you EUR 150 for this service, too. (The fee behind the "for animals in the hold, a surcharge of EUR 150 / CHF 170 / USD 170 / CAD 220 is charged for transfers via Brussels, Geneva, Frankfurt, Vienna and Zurich" wording on the website)..
With a seven-hour layover, what I'd do is short-check the dog to FRA.
Collect the crate on the oversize baggage belt, walk through immigration and customs (necessitates entering the EU, the process usually is very quick and no problems), so you'll need a compliant microchip, current rabies shot, this form which must be endorsed by AVS, take the shuttle bus to the Steigenberger airport hotel (which is directly next to the forest) and then take her on a looong off-leash walk through the Stadtwald forest which is directly behind the terminals. A day room at the Steigenberger with a walk in the forest will cost you less than the LH transit fee and be much nicer for your dog and yourself Re-check the crate about 90 minutes prior to departure of your connecting flight. Ask the check-in staff when you'll have to be there at the latest to maximize your outdoor time. I was able to leave crates there as well in the past.