Well these are all very good questions to be asking as a noobie, but a little searching on this forum would answer most of them.
Well to start with, you really should use firewire to connect the cam to a PC. USB is only any good for transfering still images or perhaps webcam quality video.
The best free software for capture and editing video is only available as part of Windows XP, which I assume you are not running on a P3

. this software is Movie Maker and is very good for starters, but alas not any good for you.
A P3 is a bit old, but it can be done. You will need to search around for some old software that will work on the PC as modern programs will likly not run on such a PC.
Via firewire you will capture the footage as an AVI file. This will copy to the PC in real time, ie a 1 hour tape will take 1 hour to copy. It is then down to how long you spend editing it. Once that is done you are likely to need to leave it overnight to convert the files to smaller MPEG-1 files that will fit on a VCD.
My advice is get as much RAM as you can in the PC, and add a second hard disc - you will need both! But if you get the bug and want to go further you really will need to upgrade the PC.
Good luck,
Mark.