Wireless networking/security

Hi all:

I have my Hawking Wireless-G Router working perfectly now, but I am
wondering how to get the security encryption to work? it asks me for a
security key, is that something i make up and put on my laptop too?

total noob here - as u can tell. i tried to set it up once and lost my
connection.

also there is an option with the software to only allow computers i specify
to connect to my connection - is that secure?

plus the laptop is also picking up a linksys connection too - i guess there
is someone in my area running an unsecured connection?

TIA,

Clyde