Hi and welcome to the wonderful world of DBS!
To answer your questions:
"I was wondering what the DVR actually does"
A DVR is a "Digital Video Recorder". Think of it as a VCR on steroids. A DVR is to the VCR what Pong is to Doom 3. With a VCR you want to record a program, you have to set the time on the VCR first. Then find out what time the show is on. Then set the start time and stop time and then the channel. Then hope you don't have a nanosecond power outage wiping out your timers. With a DVR, press the Guide button and look at what's on over the next 9 days. Oh look! I want to record that show. Press the record button. Tada! Done.
You're watching a program and you decide you really want to record it. With a VCR, tough luck. When is it on next? With a DVR as long as you were watching from the beginning of the show, rewind the program you were watching to the beginning of the show...it doesn't matter you weren't recording it. Press the record button. Tada! You're recording the whole show.
Say you started recording a show and it's only half over, but you want to start watching the recording now. Just do it! You can start watching the beginning of a recording while the program is still recording the end of the show. I do this all the time. I end up watching what would have been 3 hours of prime-time programming in 2 hours. I start watching at about 9pm and usially catch up to "live" at 11pm.
Once you start using a DVR, you will never go back. It really changes the way you watch TV.
"Can you record one channel while watching another? Can you record two channels at one time?"
Not a dumb question. It depends on the model. The 522, 721 and very expensive 921 can record two shows while you watch a recorded one, or they can record one program while you watch another "live".
The 501, 508 and 510 can record one show while you watch a recording. It cannot record one show while you watch another. It only has one tuner. Sounds like a bummer, but take it from a guy who had a unit similar to this for 4 years. (The original 7x00 Dishplayer) You get over it very quickly. The trick is to have a library (backlog) of recorded programs. Again my backlog usually consisted of shows recorded that same night, I just started watching an hour late and catch up to "live" TV by zipping past commercials. The 30 second skip button is your friend! And after you've had a DVR for a while, you find yourself looking for the 7 second reverse skip button to see or hear what you missed on your car radio, other TVs and even in real life.
I just recently got a 721 and it is wonderful as well. Having two tuners is handy. But most of the time, I am only using one of them.
See ya
Tony