If you've downloaded a file with the .bin extension then you don't need to do anything special to it before installing the router's firmware. In your router's case, you have downloaded a 'binary image' of the firmware - which should explain the presence of the .bin extension to you.
VLC will associate itself to .bin files by default because some CD/DVD images use this extension (in general accompanied by a *.cue file which is used to open them). Unfortunately, the bin/cue image format is used in the same way as the iso image format and many of the .bin files contain games, images, raw data or god knows what else and not video DVDs or audio CDs as VLC would have you believe.