newbie — how to figure out & customize a theme?

I’m just starting to build my WordPress blog and am trying to figure out how to customize the default theme. I have a couple of newbie questions that are pretty much just figuring out how to go about getting the work done:

* The basic way to customize the theme is to edit the PHP code in the theme folder, right, especially sidebar.php?

* Say I want to understand the following line:

<?php wp_list_pages(‘title_li=<h2>Pages</h2>’ ); ?>

Is there a WordPress API document that explains the wp_list_pages() method? Or how would you find out how this (and other php arguments) work?

Thanks for the help!
Chaim