What does the toasting accomplish? - I believe Marris Otter is kilned slightly darker than 2 row, so toasting helps to approximate the higer kilning. Having tasted MO and 2 row side by side, MO is a little more bready/toasty in flavor than plain 2 row.
Why wait a week after toasting? - It's my understanding that recently toasted/roasted malts can have a harshness, so it's recommended to let them sit for a few days before using in order for them to mellow.
Should the grain be in a paper bag for the week or back in plastic after it cools? - I don't think this matters.
So then toast roughly 20% of 2-row @ 350 for 16 min. to simulate MO?
I have almost a full sack of Caramel 30.
Can this be toasted to turn it in to some of the higher number Caramel malts? - I don't think so, caramel malts undergo a slighly different malting process than base grains (http://www.homebrewtalk.com/wiki/index.php/Crystal_malt). The taste of caramel malts is probably too different (i.e. sweeter) than the taste between 2 row and Marris Otter. Also, caramel malts aren't as fermentable as base malts.
I hope this helps. Toasting malts to give them a little extra added complexity can be a good technique. With that said, Marris Otter is a great malt and also worth using if it's available to you.