How to use the Tiny Music Box

Firing your gun while using a two-handed trick weapon isn't typically possible, but there is at least one weapon that allows you to do this:

The Rifle Spear has a built-in gun function while in its two-handed mode. I believe that you shoot it just like a regular gun, with L2. The item description includes the line "it is the only trick weapon with an attached gun," so it's possible that it's the only weapon in the game that can do such a thing.

There are also a number of trick weapons that still only require one hand even in their transformed mode, such as the Saw Cleaver, Saw Spear, and Threaded Cane.

I can see how the 'red light' could be confusing, but the windows/doors with the red lamps are just homes of ostensibly sane citizens as far as I know. Most of the people you meet just tell you to take a hike, but some give you items, small quests, or want you to tell them about somewhere safer to take refuge.

The 'safe place' you can send people is Oeden Chapel, which you can access after completing Central Yharnam, by defeating Father Gascoigne. You'll need to talk to the beggar in the chapel before you can start sending people there. Look for the red cloaked figure on the floor near the lantern.

There is a second place where you can send people - Iosefkas clinic. Iosefka can be found behind a set of double doors, at the top of the steps behind the '1st Floor Sickroom' lantern. She'll eventually ask you to send people to her.

Notes

There is a time sensitive cutoff for saving these people, which is the defeat of Rom the Vacuous Spider. After that, returning to their locations will elicit "no response".

You actually can talk to a prostitute in one of the homes, although she says she's 'off during the nights'. In fact, she is one of the people who is looking for a safe place.

I believe the lamps outside these homes are actually filled with incense that keeps the beasts at bay. The beggar in the chapel explains that all of the incense there is what keeps the beasts from entering, and Arianna the whore mentions when you speak to her at her home that she is almost out of incense. Just speculating though.