Yes, you can use LW to download and upload some files legally. Paying for Pro gives you no right to download files that are illegal to be shared in your country though.

How do you know what files can be legally shared or not? That's a question for a lawyer in your jurisdiction. For most of us, we have to do our best to search whether the original copyright holder allows sharing or not, and use our best judgement. The laws are constantly changing.

If you are in the States, see http://eff.org/IP/P2P/howto-notgetsued.php for more ideas.