Yes. Go to System Preferences, then Desktop and Screen Saver, under the Desktop tab you can choose what folder to use for the desktop picture, and have the option to change the photo automatically at a set interval.
No. In that System Preferences pane, there's a list of folders on the left. Click on the "+" at the bottom of that and choose which folder you want to be able to choose pictures from. The plus is highlighted in red in the screen shot: