You say you are confused, so I will try and help.
In simple terms there are 4 main ways to harm your computer
1) Viruses: Program or code set out to deliberately harm your computer. Monitored by an anti-virus program like AVG.
2) Attacks coming in or going out via internet access: Can be all sorts of things. Monitored by a firewall like Zone Alarm.
3) Adware / Spyware: Cookies or programs that monitor your internet browsing habits and spy on you. Monitored by a program like Adaware.
4) Malware: Any computer program designed to infiltrate or damage your computer. CAN be a virus, but may not be. Products like Microsoft Malicious Software Removal Tool will look out for these.
To protect me against these I use AVG Anti-Virus, Zone Alarm Firewall, Adaware and WinPatrol, and they are all free versions so I pay nothing for my PC security.