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Yes you're on the right track . At the most basic level a website is a file or files (your website pages) that are hosted somewhere. There are free services out there, but in my opinion, it's really not that expensive to pay for hosting somewhere and you get full freedom with paid hosting whereas you might have to have the free hosting company's advertising on your site/really limited website site etc.
As far as the size of a hosting package to buy, unless you are planning on having a massive site (comparable to say a huge corporation that gets daily visitor #'s in the hundreds of thousands or more), the most basic package they offer should be more than big enough space-wise. If you aren't sure (like there are different features offered between several plans that you are comparing), please either post on here or pm me and I'd be more than happy to explain what you're looking at .
Don't worry--there are no stupid questions and the only way that you learn is to ask questions--lots of questions!!!!!