Okay, I've made progress. I currently can run both the server and game. To test the port problem, I kept both ports as 34197, and tried to connect. I got the error that the port was already in use, as expected.

So then I went into the original config file and changed the port to 34198. When I try ...

I made another config.ini file and named it config-server.ini. Do I keep both of .ini files in the config folder? Or do I need to move one?
They can stay in the same folder. Don't forget to change port number in one of the configs otherwise you won't be able to connect to multiplayer while server ...

I have tried following the steps posted by posila, but need some clarification:

I would like to run the headless server as well as play on the same machine, as Lucrin said he can do.

I made another config.ini file and named it config-server.ini. Do I keep both of .ini files in the config folder ...