If you just want a bike to get around on, and it meets your needs, then it might be worth fixing.
Bike shops will have suitable brake pads for about $8-10 for a set of four. You also may need new brake cables and housings, and shops generally have a packaged kit for $5-6 that has a brake cable and lots of housing... request extra ferrules (the end caps for the housing) and cable tips (which are crimped onto the brake wires after installation so they don't stab you). Installation info: http://www.parktool.com/repair/readhowto.asp?id=22
As for the 3-speed shifting, I suspect your Murray has the Shimano 3-speed. The right end of the rear axle should have a gizmo with a "keyhole" port facing up, and the cable connects to the axle gizmo with an adjusting barrel that's used to adjust the shifting.
When the shifter is in 2nd gear, pedal the bike a couple times and look into the keyhole, and see if the circled N
is dead-center in the hole. If not, use the adjusting barrel to get it centered. The adjusting barrel should have a small locking ring, if I remember correctly from my childhood, so you may have to use a couple pairs of pliers to gently un-jam the locking ring from the adjusting barrel before you can make adjustments.
Hope that helps, and maybe post some pics if you run into further issues
Oh, and periodically check the screw that holds the shifter together to make sure it's staying tight... if it shows any signs of looseness, don't put off fixing it or you'll be hunting for the tiny ball bearing that does the clicking. And guess how I know about THAT