Klenow fragment does not seem to have 5->3 exonuclease activity, but it can still displace nucleotides in front of him - How?
Generally, the New England Biolabs website is a great resource for this sort of information.  Maybe you already know this: Klenow fragment is widely used in molecular biology today. The broad use of Klenow fragment is because it will remove 3' overhangs, thereby 'polishing' or 'blunting' the DNA.  See the famous cloning techniques manual for additional information.  

It is a polymerase, though, and it does perform 5-->3' elongation in the presence of dNTPs.  (sidenote: Klenow was initially used in polymerase chain reaction (PCR) development, and later replaced with heat-stable Taq pol.)   

The so-called 'strand displacement' activity of the enzyme allows the 5-->3 elongation of the new strand to occur even in the presence of an existing, annealed strand ahead of the advancing polymerase, as you say.  This may seem problematic at first glance, but the job of polymerase is to make a complete, templated copy of DNA -- that is why reseachers use it, and that is its job in nature too!  Stand displacement is really convenient for scientists when using random primers, for instance.  The DNA polymerization can continue unimpeded despite the presence of a 'downstream' barrier.  This is also why not having 5'-->3' exonuclease activity is helpful in this context.  (sidenote: pol I is not the main replicative polymerase in E. coli. and its discovery is one of the great stories of post-war biology).

I hope this addresses your question(s).