what would be some good terms to search or threads to help us understand the differences between indexing, backlinking and directory submissions, as well as free methods to accomplish this?
I'd say those are good keywords and that Google is your friend.
Free Indexing Tool
Free Backlink Builder Tool
Free Directory Submission
I was under the impression that my 30DC blog got indexed by submitting to TB, is this correct? In addition, I figured that backlinks and directory submissions came from TB entries as well.
For understanding exactly what Traffic-Bug does and doesn't do...
The Traffic-Bug FAQ is your friend.
...how easy it is to do an MS search or TB submission and in-turn get easily discouraged if I don't see instant results.
Get used to it. Feeling discouraged from time to time is guaranteed in this game. As long as you keep working at it anyway, and it sounds like you are, then you'll do fine.