The red buttons in 7650 emulator generate the key events related to each button. In that way it is possible to write and test applications which use those key. For example ESideKey can be reused inside your application for your own specific purposes. The Avkon-specific names of the keys are defined in uikon.hrh located under epoc32\include.
There is one way to use PC Web cam images inside the emulator. In the emulator the camera server give the applications two different pictures based quality settings(EQualityHigh,EQualityLow). These pictures located in
valo_qqvga.mbm // 160x120x24bpp
valo_vga.mbm // 640x480x24bpp
If there is an application which update these files content based on your Web-cam, then the emulator show your Web Cam images. For example in Snapshot example application.
However you should remember, that the speed of picture capture of 7650 camera compare to this emulation is slightly different.
The bmconv utility could be used to create the multi bitmap(mbm)format file from a windows bitmap and also to get the content of the mbm-files in windows bitmap format. Please read the SDK help how to use the bmconv utility.