They shot him against bluescreen and then composited him into the scene.
Fett's first appearance was for the Holiday Special. He was also offered as a special order figure by Kenner around the same time. It first came with a firing missile from his jetpack, but when a few kids were hurt by firing missiles from Battlestar Galactica toys, Kenner stopped production of the Fett firing missile figure. It was never available to the public.