I'm so sorry for the late response. I was on vacation and this got lost in the shuffle of my inbox :S

Harlequin is a brand of romance novels. In a fannish context, it's fics that fit the style of those romance novels. Many fandoms have run Harlequin challenges, here's a list.

Incorporate physical sound is more meant to mean physically making the sound as you record, rather than editing it in later. For example, I was recently recording podfic with lunate8 and the character she was reading was in a helicopter, so she started beating her chest to simulate the beating of the chopper.