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Caedwyr
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As for optimizing it depends. Many laptops will share there RAM between the OS and the GPU and if you get in the BIOS you can then, often, tweak how much of the RAM is set aside for the GPU so that can be one area to look at. Other than that I'd say it is making sure it uses the newest available drivers and minimizing what stuff runs in the background that uses CPU cycles.
For safety and choice of software putting Linux or Chrome OS on it is a good idea, but as mentioned I'd test out first if it is worthwhile even trying.
What is the model #?
I am happy to walk you through here or in PM's.
What you are able to do is play ANY media to a TV via the HDMI or whatever it has as an output and you can even queue stuff up from your phone. You can leave the laptop lid shut (usually) and just play whatever you want.
As a bonus you could even play some games now that Steam is pretty decent on Linux
It will not do particularly well with any kind of modern video file. I could not get mine to play 720P mkvs through VLC full-screen without dropping frames, though it would play them if VLC was in windowed mode and not scaling from 1280x720 to the full resolution of the screen. For DVDs and standard def stuff, it should be fine, or maybe if you are outputting video to a native 720p screen so it doesn’t need to scale.
There's pretty cheap (as in cheaper than the cheapest GPU that will suffice) Raspberry Pi-a-likes that will do the job though. If you're going to put $100 of your time into bringing this system up to speed, it might be worth considering.
setting up a linux machine with plex is not what I would described as a newbie friendly process however it's also not mr. robot level stuff either.
The simplest way is to install linux (there is an option in the setup of most distro's to "use the whole hard drive" which will wipe everything else for simplicity's sake.
Then, once installed you can install plex via whatever software manager come with the distro. It may not be the latest plex but it is verified to work with what you have installed.
Once plex is installed there is a setup wizard which guides you through adding your media and bam, you're done.
If you want the server to be accessible outside of the location where the machine is then yes you need to open ports however if this is for internal use only then it doesn't matter.
some of those guides go pretty far into the weeds tweaking stuff but if this was my mom or grandparents I'd just install linux, install plex and give them a wireless mouse. The end.
You'll definitely outgrow whatever onboard storage they have. Get something with a USB 3 / thunderbolt port and you'll be good to go for the foreseeable future.
Virtually any multicore system with 8+GB ram and a good connection will work.
Storage of good quality video adds up FAST.
When I was hosting my own locally (I don't any longer) I was using 4+ TB and it's only my house using it...
The big difference between Plex and Kodi is (I believe) that the latter doesn't transcode its stream. If your bandwidth (and hardware) supports the native stream, this isn't really an issue.
I switched to Plex so I could stream to my phone on hotel WiFi.
Depending on their hardware, you might need a very specific Linux distro* (though it probably exists), but some of those devices might just let you install Plex, no wipe needed.
*(So verify if anyone has done so with your specific device of choice if you're worried about wrestling with the console. )
It's complex and stupid because no one wants to play together so most people just deal with transcoding.