I am confused and was wondering if this is basically how reseller plans work.

- You purchase space on a dedicated server and pay the company the fee each month.
- You then sell space to others and put there stuff on your server.
- They pay you each month and you pocket the money.

Basically yes

Yeah, that is about it, when in doubt, you can always ask your host...

Yes.
I like the way you've ordered the 3.
You pay first, then try to get customers and finally get them to pay you. :D