Welcome to MobileRead, couragous!
I can understand your confusion, there's a lot of info floating around. Let me try to de-tangle some of it for you.
Okay, we're talking about the Sony Reader (not
eReader, by the way, that's a Palm application for reading books), and if you are buying a new one you are probably talking about the PRS505 model.
That device doesn't work with Amazon's books at all. You can buy books for it from Sony's Ebook Store, but that is a bit complicated from outside the U.S., so we'll set it aside for the moment.
You are
not limited to material from Sony. You can get stuff from many sources, especially if you're willing to do a bit of converting to get to a format the Reader will handle. The Reader will handle files in these formats: TXT, LRF, LRX, RFT, and PDF.
TXT of course doesn't handle any formatting bits, such as bold, italics and such.
LRF and LRX are Sony's BBeB format, the non-encrypted and encrypted types. There are a number of tools that will make LRF (the non-encrypted type) out of a large variety of source formats.
RTF is probably the simplest to deal with on the Reader, as you don't have to convert it at all to open it on the Reader. If you can save your source material in RTF format, the Reader will open it right up. There are a couple of catches on that, though. The first is that the Reader won't display images in an RTF file -- not usually a problem for books, but it can be for other materials. The second catch is that the Reader shows the text in an RTF at a fairly small size, so increasing the text size before putting it on the Reader is a good idea.
PDF -- this one has a really big catch. PDF files look great on the Reader
IF they are formatted for the Reader's screen size. If the PDF is sized for an A4 page, it will be mostly unreadable on the Reader's display. If you're making your own PDF files, that's not really a problem because you can control the "page" size the files are made at, but if you're getting PDF files from other sources, it can be a big problem.
That being said, the format I recommend for the Reader is either RTF or LRF.
Now for actually transferring files onto the Reader, with the 505 you have several options. You can use Sony's e-Book Library software or the libprs500 app (that you can find on this site) to transfer the files over USB. You can put the files on an SD card or MemoryStick and put that in the Reader, and read them from the card. Or you can just plug the 505 into a USB port and transfer the files directly onto it like you would a USB drive.
Hopefully that will get you started. If you have other questions, just say so.