Ok...
Your DEMOs will reside under paintball2\pball\demos. If you installed paintball2 to your c: drive it would be c:\\paintball2\pball\demos.
Now...
To record a demo bring down the console while in game (bring down the console by pressing the ~ key) and type "record <demoname>" without the quotes, of course. Replace <demoname> with the name you wish to give the demo.
You can also place any demos that you receive in the above mentioned DEMOS folder and they will become available for view the same as all of your recorded demos.
Although you can play demos from the command line, I prefer to use the "Play Recorded Demo" feature in the game. To use this option press PLAY and at the bottom will be "Play Recorded Demo." Upon selecting this option you should see a list of all demos residing in your DEMOS folder. Select one and play it.