Entire books have been written attempting to answer your questions. Bicycling Magazine's "Complete Guide to Bicycle Maintenance and Repair" and Lennard Zinn's "Zinn and the Art of Road Bike Maintenance" are two of the standards. The Park Tool web site and Sheldon Brown's web site are also great resources.
As to your specific bike, it probably should be given a complete overhaul and relube. Fix the bottom bracket right away. A bike shop would probably charge about $75 to $100 to do the complete clean and lube you need.