I had much the same questions when converting to 10.04 a few months
back. I didn't much understand the way Ubuntu presented the disk
partitioning and formating. I downloaded "Gparted", another ISO
you create, and boot from, to show your disk partitioning as it is and
to me seemed easier to repartition in a more graphical presentation.
One repartitioned with labels it was then easier to finish installing
the Ubuntu. It is nice to have the Gparted disk to boot from to check
partitions, and in case you want to do further adding or resizing later.