It's on the ground level between the two parallel terminals. There will be enclosed walkways for the people from Terminal 1. Those coming from Terminal 2 will walk across an open plaza to the MAC (look for the green 'S' sign for the S-Bahn, but don't go down the stair into the S-Bahn station).
AFAIK, flights coming directly from North America come into Terminal 2, as do all Lufthansa flights from Europe. They come into different levels - one for outside Schengen, requiring immigration control, one for inside Schengen. Only non-Lufthansa flights from Europe arrive at Terminal 1, so I assume those arriving in Terminal 1 are arriving in Munich on another airline from in another Schengen airport. People arriving at Terminal 1 should have already gone through Schengen immigration at their arrival airport.
There are 5 "modules" in Terminal 1. Each, I think, has their own baggage claim. Customs will be right outside the baggage claim area.