Carcinophobe wrote:So do I need to convert the mp3 to WAV?
When you import any audio into Audacity (MP3, WAV, Flac... any format supported by Audacity), it is converted to uncompressed audio data suitable for editing.
The source files that you import into Audacity should ideally be WAV format. WAV is an uncompressed format and does not "damage" the sound quality. MP3's do a couple of unpleasant things to recordings - 1) they throw away some of the audio data, and thus lower the sound quality (this is not repairable) and 2) MP3's add a little bit of silence just before the start of the file.
For these reasons, you should wherever possible use WAV format throughout the production process.
As Koz has said, MP3 is a "delivery format". If you want to send an audio file electronically (e-mail, PodCast, Web download...) WAV files are BIG. MP3s are very much smaller, and so long as you only compress the audio (your finished production) to MP3 once, the loss of sound quality should not be too noticeable (use at least 64kbps for mono and at least 128kbps for stereo files - better quality is achieved using bigger numbers).
Carcinophobe wrote:it has been combined in a way that it flows so smoothly that you couldn't notice it.
How does someone do something like that?
He's had lots of practice
There are good places and bad places to make your edit point - An ideal place for strongly rhythmic music like this is immediately before a beat, and as close to the centre line (0.0 on the vertical scale - this is known as a "zero crossing point").
Here is an example of a good edit position:

- edit-near-beat.png (12.14 KiB) Viewed 403 times
And zoomin in very close we can see that it is very close to a zero crossing point:

- zero-crossing-point.png (11.58 KiB) Viewed 403 times
Sometimes it is not possible to meet these conditions, in which case you would use a cross-fade like this:

- cross-fade.png (14.72 KiB) Viewed 403 times
For the cross-fade I have overlapped the tracks to be joined, and in the region of the overlap I have applied a "fade out" effect to the upper track, and a "fade in" effect to the lower track.
(all of the edits shown above sound "seamless").