Part 1
.rar files are just bigger files (or directories of files) split up into a whole bunch of smaller files. The purpose of this is to be able to efficiently have data transferred in smaller pieces without worrying about possible corruption and such.
A good example is Part 2 which I am about to get to. People will create .rar's out of a CD such as the .ISO file you speak of, and then share it to others.
Judging from the picture I see, you must already have an application capable of opening them, most likely winrar. You should be able to use that to extract what you WANT to a separate directory.
I'm not sure why it's not showing .rar at the end of the files that have pictures though, that's kind of odd. It's usually all one or the other.
Part 2
Burned copies of games are not exact copies of the original (unless specifically done in an application like Clone ISO). So even if it's in, if it's a burned copy, there might be copy protection preventing you from playing.
Solution:
-Diablo 2 may be an old enough game where you can simply copy everything off that CD into the Game directory it's installed to and it will work. I can't remember though, and this might not work due to the reasons above regardless.
2nd Solution:
You'll need a NO-CD game crack from Megagames or
www.gamecopyworld.com... make sure you update the game first.