If you haven't yet done so, I would recommend reading the manual for setup questions as Onkyo does a pretty good of explaining things in their manuals. I have an Onkyo receiver and can answer any further questions.
For the listening modes, it depends on the format of the source you are playing. If the components are connected correctly and the digital inputs assigned properly, the receiver will automatically recognize the format and use that listening mode. So, if you are playing a DVD with a Dolby Digital 5.1 soundtrack, it will automatically use the DD decoder. Depending on the format, you can also choose to use other listening modes; eg. if the source is DD 2.0 (many music/concert DVDs, digital cable channels), you could use ProLogic II Movie/Music mode to get 5.1. If you have all 7.1 speakers connected, you could use PLIIx to get 7.1 from a 2 channel source.
All setup, except digital input assignment, is done from the setup menu and is very simple. For speaker distance, you just enter the actual distance from the speaker to your listening position. You also tell it which speakers you have and set the xover frequency for bass management. You will want to calibrate the system using the internal test tones and an SPL meter and the manual describes that process.
Speakers A and B can be used separately or together. If you had an additional two speakers, say in the patio, you could connect them to the B terminals. Your main front speakers go to the A terminals.