Great response, that really helped me a lot. 
Glad to hear it!I do have one question though, and it's more a request for clarification than an actual question:
As I've been reading and reading and reading about Bitcoin, the nagging thought in the back of my head has been: how can I (if possible) use this system to pay for those core things that I need to live, such as groceries and rent. The answer to that, in my mind, has been that I will, at the end of the day, need to convert BTC to USD in order for the BTC to basically "interface" (for lack of a better term) with other, more widely circulated currencies; basically the currencies that we use day to day. That is, I imagine, where an exchange comes in.
As Reto said, bitcoins will need to become much more popular before they are accepted widely in "meatspace". Personally I estimate that it will be a couple years before the value of bitcoins stabilises enough that the value proposition for large, established companies will be sweet enough. But depending on who your landlord is and where you get your groceries, you might be able to convince them sooner. Since most people aren't earning their living directly in bitcoin yet this isn't a problem, but I can see that some people will need to use another currency as an interface, like you said. It will be the existence of these people that will provide the incentive for more established companies to start adopting bitcoin.As I've been reading and reading and reading about Bitcoin, the nagging thought in the back of my head has been: how can I (if possible) use this system to pay for those core things that I need to live, such as groceries and rent. The answer to that, in my mind, has been that I will, at the end of the day, need to convert BTC to USD in order for the BTC to basically "interface" (for lack of a better term) with other, more widely circulated currencies; basically the currencies that we use day to day. That is, I imagine, where an exchange comes in.
My biggest concern has been the trustworthiness of the exchange, but I think I've been considering it all wrong: I've been thinking of exchanges as, essentially, banks that have a quantity of money and I pay them, then they pay me in Bitcoins. There is, of course, the concern for fraud, which is one of the things that BTC is trying to create a system against.
But am I thinking about it wrong? Do these exchanges purely facilitate the trade of Bitcoins-to-USD/CAD/EUR/whatever between the users? So that I go to, for instance, Mt. Gox, put a proposed exchange, and then I'm contacted by the user with the appropriate currency to then do the exchange, and everything is done directly so that there is no intermediary that acts as a bank to hold money for me (or anyone else) to withdraw from? Or is it these services that act as escrow, essentially?
I apologize if these questions seem pretty rudimentary, but I'm intrigued by the prospect of BTC as a thing, and I'm always and forever interested in crypto-anything, so why not get involved in cryptocurrency?
You're exactly right that exchanges merely facilitate trade between users. Although I'm sure exchange operators do some trading, the vast majority of volume is travelling between their users. In fact, a fair bit of trading still occurs through #bitcoin-otc where there is no exchange and users trade with aid of the "web of trust" system.But am I thinking about it wrong? Do these exchanges purely facilitate the trade of Bitcoins-to-USD/CAD/EUR/whatever between the users? So that I go to, for instance, Mt. Gox, put a proposed exchange, and then I'm contacted by the user with the appropriate currency to then do the exchange, and everything is done directly so that there is no intermediary that acts as a bank to hold money for me (or anyone else) to withdraw from? Or is it these services that act as escrow, essentially?
I apologize if these questions seem pretty rudimentary, but I'm intrigued by the prospect of BTC as a thing, and I'm always and forever interested in crypto-anything, so why not get involved in cryptocurrency?
As far as how transactions actually occur--some exchanges leave the actual transaction up to the users, while some are essentially acting as escrow agent, like you said. Obviously when you hold both the bitcoins and the dollars/euros/whatever of users directly it increases the confidences of the users drastically, provided the exchange itself is trusted. That way you know the person is actually capable of completing their order--and in fact it is done immediately. So having trusted exchanges is the ideal vs having to figure out whether you trust each individual users. Exchanges like Mt. Gox, for example, have secured the trust of the community and this is why the Mt. Gox price is often used as the benchmark of bitcoins' exchange value.
My personal advice to people is always that the riskiness of BitCoin itself is much greater than that of using a major exchange like Mt. Gox, or a trusted trader like Bitcoin4Cash or CoinPal. Bitcoin is groundbreaking technology that has a chance of being wildly successful, but you still shouldn't be putting any money that you can't afford to lose into bitcoins. Put a small amount in and start using it, and get your friends to do the same. BitCoin needs to scale up slowly and carefully, prove itself, and then become wildly successful if all the kinks have been worked out. Most of us here in the BitCoin community are in it for the long haul--we don't need the price to go through the roof tomorrow and have bitcoins accepted at the grocery store on Monday. Building a successful currency will take time, patience, and a lot of hard work. But if you can help that process along by participating in the BitCoin economy, the powerful business models it enables, and ideally offering goods or services for BitCoins yourself, the future would be greatly indebted to you. Even if all BitCoin becomes is the greatest experiment ever, the knowledge gained will be incredibly worthwhile. Just think of the stress-testing of the cryptography alone!
At the end of the day, buying bitcoins today is a little bit like buying shares in Microsoft at its IPO. Sure, there is the potential for incredible gains and the investment of capital is critical for its success. Everybody these days wishes that they had bought shares in Microsoft, or Google, or whatever at just the right time. But back when the buying of those shares had to happen, the future of that company was a big question mark. It was simply impossible to tell for sure what would happen--which is the whole reason initial investors made so much. Make sense? To invest in bitcoins now is to take on the risk of the bitcoin's future. We need people to do it, and if BitCoin is successful they will be greatly rewarded, but you shouldn't take a risk that you can't afford to.
Maybe that investment advice was completely superfluous there, but I always try and include it just in case its not. On a more personal note, I've convinced a number of my friends and family to put small amounts into bitcoin and start playing around with it--it's a fantastic idea and I believe it may well be bigger than any of us realise. But it's also unproven--be wise.