Wireless Access Point with Radius Server > authentication?

I have the following set-up: small office network connected through a switch
with ADSL modem and wireless access point connected. Some desktops connect
through UTP, most laptops use WiFi. No designated server.

I use the internal DHCP server of the ADSL modem. The DHCP server of the AP
has been disabled. The AP (Edimax 7207APg) has an internal Radius server, but
I am confused about its configuration.

How can I set-up this AP, so that 'external' WiFi users need to authenticate
with a username and password before accessing the network? In the
configuration of the internal Radius server, a list of usernames and
passwords can be entered, but how does that relate to Authentication Client
table and Client IP with shared secret key? And how does all of that relate
to encryption security (WEP, WPA, IEEE 802.11 or else)? And what settings do
the laptop users need to apply?

Most laptops use Windows XP SP2, some are Apple Ibooks.

Many thanks