how do I find the blitzdemo.zit file, and how do I install the demo?
The demo is downloadable via the products page on this site, if you have networking up and running on your PearPC setup then you can just download it and extract it.
Failing that, you can create an ISO image containing the .sit file and anything else you might need (bear in mind you need the XTools stuff as well, downloadable from the apple website, but also should come with OSX if you have all the disks).
Once you've created the ISO, you can edit your config file and mount the ISO as a CDROM, then start your PearPC.
*EDIT*
if you want to create your own HDD image file, I created a utility to do this (will need formatted in the OS).
You can format it using a DOS FAT and then access it with a program like WinImage to transfer files back to windows. (this would obviously be easier if you have networking setup).