How do I insert this php code into my php file?

I have a working version (modified) of the Sige plugin for Joomla 1.6
which can be downloaded from:
http://extensions.joomla.org/extensions/photos-a-images/photo-gallery/13762

Within this I have custom added a script which shortens long URLs manually.
The file sige.php is attached here:  sige.php
I shorten the long URLs that this plugin generates (for the facebook/twitter buttons) with the following code at the top of this file (lines 70-99):

function make_bitly_url($url,$login,$appkey,$format = 'xml',$version = '2.0.1') {
	$sql = "SELECT * FROM `url_cache` WHERE `before`='".mysql_real_escape_string($url)."' LIMIT 1";
	$check = mysql_query($sql) or die(mysql_error());
	if(mysql_num_rows($check)==1) {//we found it in cache
		$url = mysql_fetch_assoc($check);
		return $url['after'];
	}

	//create the URL
	$bitly = 'http://api.bit.ly/shorten?version='.$version.'&longUrl='.urlencode($url).'&login='.$login.'&apiKey='.$appkey.'&format='.$format;

	//get the url
	//could also use cURL here
	$response = file_get_contents($bitly);

	//parse depending on desired format
	if(strtolower($format) == 'json') {
		$json = @json_decode($response,true);
		$sql = "INSERT INTO `url_cache` SET `before`='".mysql_real_escape_string($url)."', `after`='".mysql_real_escape_string($json['results'][$url]['shortUrl'])."'";
		mysql_query($sql) or die(mysql_error());
		return $json['results'][$url]['shortUrl'];
	}
	else //xml
	{
		$xml = simplexml_load_string($response);
		$sql = "INSERT INTO `url_cache` SET `before`='".mysql_real_escape_string($url)."', `after`='".mysql_real_escape_string('http://bit.ly/'.$xml->results->nodeKeyVal->hash)."'";
		mysql_query($sql) or die(mysql_error());
		return 'http://bit.ly/'.$xml->results->nodeKeyVal->hash;
	}
}

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Later I call this code to shorten my URLs in real time with this code (lines 804-810):

$url = $mosConfig_live_site."/plugins/content/sige/plugin_sige/socialshare.php?img=".$mosConfig_live_site.$rootfolder.$_images_dir_."/Midsize/".$images[$a]['filename']."&name=".$imagename;

$u = make_bitly_url($url,'badwolfff','R_f650e553b78bb0569fc67dbc16a5de7c','json');

$html .= '<a href="http://www.facebook.com/sharer.php?u='.$u.'&t=Zuenelli - '.$imagename.'"  title="aggiungi a facebook" target="_blank"><img src="'.$mosConfig_live_site.'/plugins/content/sige/plugin_sige/facebook.png" /></a><a href="http://twitter.com/?status=Zuenelli propone - '.$imagename.' (cliccare sul seguente link per scoprire): '.$u.'"  title="pubblica su twitter" target="_blank"><img src="'.mosConfig_live_site.'/plugins/content/sige/plugin_sige/twitter.png" /></a>

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The working versions can be tested on the following link (try clicking on the facebook/twitter links):
My test website

The problem is this:
at present I use the bit.ly service with my api login/key but I would like to use a custom url shortening service which runs from my own server.

I succeeded in doing this by following another web tutorial.
The code is as follows:
- short.php

<?php
$baseurl = 'http://localhost/'; //address to use as the first part of the short URLs (note trailing slash)
$sql_host = 'localhost'; //host of your mysql database (usually localhost)
$sql_user = 'root'; //mysql user with access to your database
$sql_pass = 'root'; //password for this user
$sql_db = 'turl'; //the name of your database
 
$db = mysql_connect($sql_host, $sql_user, $sql_pass);
mysql_select_db($sql_db, $db);
 
if(isset($_GET['k'])) {
   $k = mysql_real_escape_string($_GET['k'], $db);
   if($result = mysql_query("SELECT `url` FROM `turl` WHERE `key` = '" . $k . "'", $db)) {
      if(mysql_num_rows($result) > 0) {
         $row = mysql_fetch_row($result);
         header('HTTP/1.1 301 Moved Permanently');
         header('Location: ' . $row[0]);
         exit;
      }
   }
}
 
if(isset($_POST['submit'], $_POST['url'])) {
   if(filter_var($_POST['url'], FILTER_VALIDATE_URL, FILTER_FLAG_HOST_REQUIRED) !== false) {
      $url = mysql_real_escape_string($_POST['url'], $db);
      if($result = mysql_query("SELECT `key` FROM `turl` WHERE `url` = '" . $url . "'", $db)) {
         if(mysql_num_rows($result) > 0) {
            $row = mysql_fetch_row($result);
            $key = $row[0];
         }
      }
      if(!isset($key) && mysql_query("INSERT INTO `turl` (`url`) VALUES ('" . $url . "')", $db)) {
         $id = mysql_insert_id($db);
         $key = base_convert($id, 10, 36);
         mysql_query("UPDATE `turl` SET `key` = '" . $key . "' WHERE `id` = '" . $id . "'");
      }
      echo '<a href="' . $baseurl . $key . '" target="_blank">' . $baseurl . $key . '</a>';
   }
}
else {
?>
<form method="post" action="short.php">
<label>URL: <input type="text" name="url" id="url" /></label>
<br />
<input type="submit" name="submit" id="submit" value="Shorten" />
</form>
<?php
}
?>

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.htaccess

RewriteEngine On
RewriteCond %{REQUEST_URI} \/([0-9a-z]+)$ [NC]
RewriteRule ^(.*) short.php?k=%1 [L]

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sql code

CREATE TABLE `turl` (
  `id` INT(11) NOT NULL AUTO_INCREMENT,
  `key` VARCHAR(32) DEFAULT NULL,
  `url` text NOT NULL,
  PRIMARY KEY (`id`),
  UNIQUE KEY `key` (`key`)
);

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A working example can be seen here:Working URL shortening example

**************************************************************************************************************

What I would like to do is to substitute the bit.ly short URL generation code in my sige.php with the working code from short.php. Sige.php generates URLs on the fly and I need my new code with the short.php script to generate all shortened URLs on the fly as my icons get created from my images folder and loaded on my page (same as how it works now with the bit.ly code).

How could I manage that? I am not a php expert so I would really appreciate the exact code that I need to modify/substitute in my sige.php document.

thanks in advance

p.s. I also assume that after I manage to do that I will have to leave the .htaccess file inside the
JoomlaSite/plugins/content/sige
folder - right?