Can I use the new iMac 24" With my MacBook Pro (13-inch, M1, 2020) IMac being an external monitor?

No. The Target Display Mode was discontinued by Apple a couple of years ago. Only certain old iMacs can be used as a Target Display Mode for iMacs sold before 2020.

The models that can be used are listed in this Apple document: Use your iMac as a display with target display mode - Apple.

No. The last iMacs that could act as an external monitor for another Mac were short-lived Mid 2014 models. Also no Macs newer than 2019 can be the video source for the limited number of iMacs that supported Target Diplay Model.

The concise hardware and software requirement for the now-deprecated Target Display Mode can be found in this Apple article:

Use your iMac as a display with target display mode - Apple Support

There is probably more spurious information on the internet about Target Display Mode than there is about the Loch Ness monster and a flat Earth. TDM has been incorrectly attributed as doing everything from supporting any video device to parting the Red Sea. Unfortunately, it is dead technology.

I left out an important bit…

To use your Mac as an AirPlay target, it’s best to be running macOS Monterey with a:

• 2018 or later MacBook Air or MacBook Pro
• 2019 or later iMac
• 2019 or later Mac Pro
• 2020 or later Mac mini
• 2017 iMac Pro

FWIW, if both Macs are running Monterey you can in fact either Mirror the MBP to the iMac or use the iMac as a separate display for the MBP.

How does one connect the two Macs? Does it have to be hardwired or can be over a LAN?

LAN. Basically you can AirPlay one Mac to another like you can AirPlay an iPhone or iPad to a Mac.