Estus flask is upgraded with Fire Keepers Souls, by taking them to a living Firekeeper, to my knowledge there are two, one is under Firelink, the other is in Anor Londo.
Next bit is spoiler heavy so only read on if you want more info on Lautrec.
In terms of Lautrec, when you enter the Depths he leaves Firelink, once you complete Blightown and ring the bell, you will find the Firelink fire keeper dead, you will get a Black Eye Stone from her corpse and the Firelink bonfire will not work. When you later get to Anor Londo, in the room before the boss you will get a message telling you the stone is reacting, using it acts like using a Red Eye Orb top invade another player, except you are taken into Laurtrecs world and you have to kill him. He has two companions and it is not an easy fight, at least as melee, once you kill him you get the ring mentioned above, boosts stats but you cant take it off without breaking it, a humanity and the Firelink keepers soul, it's the same as any other Fire Keepers soul and you "could" use it at the Anor Londo firekeeper to upgrade the flask, however instead you can and should take it back to Firelink and give it back to the Firelink keeper to revive her, letting you use the bonfire again, if you don't the Firelink bonfire will remain out for the playthrough.
Also, I would advise against killing him early, you get his ring but what you don't get is his Armor, which if you kill him in Anor Londo you get after defeating the bosses from a corpse above them.
Gonna have some shots at Brock tomorrow tough bugger I ent in through darkroot basin what's the boss like down there? The one past. Crystal guys?
As above, spoilerific.
There are two bosses in Basin, the Hydra and Great Gray Wolf Sif, Hydra is technically a miniboss and can be cheesed at range with a bow if you have patience and a lot of arrows, check wiki or youtube for how, otherwise it's not incredibly hard but he's not a push over either. Sif on the other hand is a full on Boss and is bloody difficult, it's the one boss so far that gave me allot of trouble. To get to Sif you either have to kill the hydra and climb the waterfall or buy the Crest of Artorias from the Blacksmith and open the door in Darkroot Garden, then get past the 5-6 NPC enemies, some of which you can't target and all of which can do things like backstab, parry and riposte, there is a technique to farm them by making them leap (literally) off a cliff (again find this yourself) making this the easier way to get to Sif.
However, there is one massive problem, if you are playing online,
DO NOT PASS THE DOOR IN BODY FORM.
The forest covenant means that anyone not in it who passes that door counts as an invader into their domain, at which point Covenant members will be summoed to your world to kill you, there does not appear to be a limit to how many can be summoned at any one time or a limit to the soul level of the person being summoned, so chances are you will get destroyed.
Another word of warning for those heading to Sif, on your way you may notice a small tower like structure, in this tower there is an NPC, it's a Cheshire Cat wannabe called Alvina, she leads the Forest Covenant and unless you want to join them (not a bad idea actually, though check wiki for details) don't talk to her, as after doing so myself and saying no, she won't give me the option to join again, the blocks you from a few very nice items.