Okay, a lot of information to take in. First off, it covers standard train journeys anywhere within the countries that are included in your pass. So, as an example, if you wish to travel from Munich to Frankfurt, you only need to look up the schedules and hop on the relevant trains (so long as it is during the period of validity for your rail pass).
Where it starts to get complicated is that not all trains are completely covered by the rail pass. To see which trains you will be taking, I recommend that you use the Deutsche Bahn (German Rail) website to work out train schedules as it is very good at calculating this for pretty well any trip, anywhere in Europe. It will also give you the abbreviation for the type(s) of train(s) you will be taking. You can see it all at the link I have at the bottom.
When you look it up, you can click on the arrow at the left-hand side of the result, and it will give you the train details. What is important is whether or not a reservation is compulsory, as the reservation fee is not covered by your rail pass. It usually will say "Subject to Compulsory Reservation" if it is required.
Now, don't get too confused by this term of "reservation fee". Although it suggests it is to reserve a seat, it usually is more than that. Normally, it means reservation AND upgrade, and is charged on higher-quality trains, like high-speed trains. It also is compulsory on night trains, especially if you are going to be sleeping on a bed like a couchette, as it reserves the bunk for you and pays for the upgrade cost of having a place to sleep.
As a general rule, these trains *usually* do not require a reservation, and are the abbreviations you will see:
IC - Intercity train (stops at more major train stations only)
R - Regional train (often stops at every little town and takes quite awhile to reach your destination)
ICE - Intercity Express (high-speed trains in Germany) - pretty well the only high-speed trains not to need reservations
EC - Eurocity train (just like an IC, but crosses at least one international border) sometimes needs a reservation, sometimes not
Those that always have compulsory reservations:
TGV - Train a Grand Vitesse (French high-speed train)
ES or AV - Eurostar Italia or Alta Velocita (Italian high-speed trains)
AVE - Spanish high-speed trains
EN - EuroNight (A type of night-train)
CNL - CIty Night Line (Another type of night-train)
This is hardly a comprehensive list, but it should get you started. The second link I have included discusses most trains that require reservations, and how much they cost.
There are so many things to know about European trains, so I am trying to stick to the major things you might encounter. First off, there are some private railways (notably in Switzerland) that are not covered by the pass, though you get a discount. Second, the Eurostar that travels through the channel tunnel (ie. from London to Paris) is not covered by Eurail passes, but again you get a discount. Third, many of the reservations should be made in advance before taking the train, especially for night trains. If you are travelling during the peak summer season, you probably want to book night trains at least 1-2 weeks in advance.
Finally, how to use the pass. You must purchase it before travelling to Europe. Before you use it, you must get it validated at any major European train station. If you are getting the pass for consecutive travel days, they will stamp the start and end dates on the pass itself. Pretty well every train you get on, you will need to show this pass to the conductor. If the train does not require a reservation, you can sit at any seat that does not have a "reserved" sign on it.
It's a lot of information, I know, but I hope this helps. Have a great trip and a great time planning!