The in-app purchases (IAP) work the same way as the public build. Yes, you do have to act as though you are actually buying the IAP however it goes through a "Sandbox" or "Non-Production" environment which means all In-App Purchases are free and you won't be charged.
IAP's may or my not work depending on the product being offered. Please refer to the app for more details.
To read more about how TestFlight works please visit testflight.apple.com.