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Your computer system runs on electricity; the electricity is regulated (converted from AC to DC) by the power supply that's bundled with it. All power supplies convert AC power into lower voltage DC current; the goal here is to ensure that the voltage doesn't fry the expensive electronic components of your computer, most of which have very strict regulations on allowable voltage for safety.
Power supplies are rated in watts. This is the maximum number of watts they can consume, not the total watts they convert. Most power supplies will pull in the least amount of energy possible for the computer's current state of use, but even so, leaving your computer on all the time is going to draw about 30 to 50 watts per second, or 1000 to 1800 watts per hour, or 1 to 2 kilowatt hours on your electric bill for every one that's turned on. This is one of the major reasons why companies like Google are going towards "green" data centers, because they eat a lot of electrical power all at once.
Power from your power supply is directed to your motherboard and other components (disk drives, optical drives, fans) by cables; modern case cables are idiot-proofed, so that there's no way to insert them incorrectly. Make sure you use the cable ties provided to set them out of the way, as they can seriously interfere with airflow.
Airflow is important – and your computer's power supply has the most powerful fan in the case because converting AC to DC generates waste heat (as does running current through any kind of component board, which is why your case has a lot of fans in it.)
Picking the right power supply mostly starts with the concept of getting one that will drive everything your motherboard can run – so look at the specifications for your motherboard first. Then, in all likelihood, grab the next powers supply up – if it specifies a 500 watt power supply, get a 600, to give yourself room for expansion.
Every six months, turn the computer off and take a can of compressed air and blow out all the dust in your power supply (and the rest of your computer) and you'll greatly improve its operating stability and the life expectancy of your components.
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