It is called the "Pause" key on my keyboard, it's to the top-right of the right hand keys next to the "Print Screen" on my keyboard and yes it pauses the action like any other game, i.e. you can switch between the different characters and change settings, the game is on my HD and I tested incase I was dreaming or something.
Every keyboard I have ever had, has a Pause button, i.e. currently using a Microsoft Natural ksyboard, they range from about $20 to $100 all the different models have a Pause key, maybe your using a nonstandard keyboard?
I sure hope you have one and just missd it, it sure could be frustrating without one.