It isn't an FM receiver, it is a super-regenerative AM receiver but it will receive FM using slope demodulation. Basically you don't tune to the station, you tune 'beside' it and the recovered audio comes from the carrier moving closer or further away from your tuning point. Expect poor results!
VR is the volume control, C3 is there to make the LM386 less stable and to increase distortion! This kind of receiver is sensitive but has poor bandwidth, poor audio quality and has a tendency to interfere with other nearby frequencies. The tuning will be tricky because your proximity to the antenna shifts the frequency.
Brian.