Whoa--one thing at a time. First off, I'd look at some of the tutorials here on installing OS's, there's lots of good info there and answers to most of your questions.
1. BACKUP YOUR BLACKBERRY BEFORE DOING ANYTHING
2. BACKUP YOUR BLACKBERRY BEFORE DOING ANYTHING
3. If you're concerned about 3rd party apps, see
this. (It's a little dated, but still pretty accurate).
4. "checked" items mean that they will remain on the device. Unchecked items will not be installed or removed. This doesn't matter too much right now because I think you're getting ahead of yourself. If you do an OS install ALL THIRD PARTY APPS WILL BE DELETED. See step 3 above to back them up.
5. The file you downloaded is the installer, so YES, you need to run the file and install the OS before it will be available for installation via DM. You may also need to delete the "vendor.xml" file.
Again, you will want to see some of the sticky posts and tutorials on here if you're unfamiliar with process. It's not too complicated, but you can end up with a big mess if you're not careful and miss steps. As long as you do a backup before you start, you should at least be able to recover from anything unexpected (or expected) that may happen.