As stated earlier unlimited is never unlimited when you start using to many of the alloted resources they normally stop you and ask for an upgrade or shut down your site.
You are correct on what domains are. They are connected to the host via DNS
A free dedicated ID allows you to have a separate IP from all of the other shared accounts on the server. This helps if the shared IP is black listed or if you want an SSL certificate (encryption for your page)
The SSL encrypts the page to allow for data to be sent through the site safely.
Many websites offer an installation script for Wordpress through Fantastico so really as long as you have MySQL and PHP its almost a 1-click installation then you just redirect to the setup page to configure the actual installation