How do me and my friend play?
Start a new game, give your ip to your friend and have him join a game with that ip. If you're behind a router or firewall, ports TCP 2596/UDP 2597 must be open.
Me and my friend keep getting in a game but it lags very bad and i keep getting disconnected. note we are on same wifi.
That's weird. I've tested it live many times through wifi, same local network, internet, etc, and never had serious lag issues or disconnects. If you play other games, those work okey? Try executing the jar through the command line and see what errors you get.