I've been to the front of the back door a few times myself. Most things with computers are very simple as soon as you understand exactly what the computer is asking for (that be the hard part). :)
1. Yes your local computer does not have a mail server by default, so it's easiest to test on a live server.
2. It might be easier to just test in a folder without trying to get a subdomain working.
3. Most hosts will allow you to just leave the mail server setting blank and it will use the default mail server for your domain. You normally only have to authorize when you are sending email from outside the server.
4. You need a mail server to complete this part. Try it on the remote server.
5. Yep. I think your almost there.