Hi irispan, this picture is very helpful to understand how it works. Shaping the next features goes in parallel with your development team building the features that have been shaped the previous cycle. So shaping takes 6 weeks.
on your second question, according to the book: " we shape the work before giving it to a team. A small senior group works in parallel to the cycle teams. They define the key elements of a solution before we consider a project ready to bet on." - so the senior team defines the next features to work on. It is a top-down approach where a small group defines the next features to release. How they select next features, it depends, I guess it all comes down to instinct, data available and customer requests. I found an interesting post about strategy here, in particular Ryan’s answer. It might help you understand how Basecamp senior team operate: What about "strategy"?
further readings: https://basecamp.com/shapeup