You are almost there. WPA-PSK is the better encryption system for wireless. Essentially, you type in key phrase (anything you like) which is used y the software to set the encryption. You type in the same key phrase on every wireless adapter you wish to connect to the router - no key phrase, no connection.
What I'm not clear about is whether you are using the wireless connection, and to what. These encryption schemes are only used for wireless - they are not used for wired connections at all.
If you are using wireless, then the software that came with your wireless adapter (or the Intel software on a Centrino laptop) will enable you to put in the key.
The firewall is a separate issue. You really should have a firewall, a virus scanner and a spamware scanner if you have broadband.