You can add your own characters if you want. You'll need to play them in the chars folder and then edit the select.def file in data/MMMD
This version of the Mugen engine doesn't natively support an explicit Vs CPU mode, but you can effectively get there by using ctrl+1 or ctrl+2. This will enable the AI for player 1 or 2 respectively. So, load up into either versus mode or watch mode and toggle the AI.