I don't know how to explain it in any more simple terms than they have... ecxep that you don't really need to carry out step 2. If you just copy & paste the code into your <head>, it should just work...
You don't really need to even be 'tech savvy' to steal images. Anyone with more than 1/2 a braincell can do it. Firefox even makes it really easy... (Go to Tools, Page Info and select the Media tab - gives you a nice list & preview of all the images plus the option to save them)
A watermark is a mark on the image which declares it as yours, for example a slightly transparent grey stamp across the image saying "Copyright © YourName 2006"
Here's a bit of an over the top example:
http://i2.photobucket.com/albums/y11...atermarked.gif
You can still see the image, but if you wanted to copy it and pass it off as your own you'd have a great deal of difficulty.
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