Do not know about the "." unless it is an incrementer?? guessing!
But the 255 is "read 255 bytes" you can set this to any size (32Kb is perhaps a good upper limit) - SO you are grabbing the data from the file 255 bytes at a time , increase this to 4096 and you should see a difference.
Alternately grab the whole file at once <?$myCache=fgets($myFile,32000);?> fclose() the connection, and read from $myCache in whatever sized chunks you require, this also helps avoid timeouts screwing with your script.
As to the last bit PHP is Serverside - so the whole file is parsed to HTML and then displayed, if you want a dynamic 'feel' you will need to cheat using a javascript timeout or use frames and forms to pass the data from your (constantly refreshing) php file to the form output.