The major part of your content will consist of block elements. Rather than thinking of these elements as paragraphs and lines of text, think of them as boxes. Each time you add a P you are starting a new box.
Boxes can contain other boxes which can contain yet other boxes.
BODY is the outside box, it can contain a P box which can contain a UL box, etc. It contains content, the area between the content and the black border is the padding, the white space outside of the border is the margin. The darker content background is for display purposes and is added inline to the P element rather than to the style sheet. The content box is the area directly behind the text. In some browsers if you add a background color to the content box it will display as a full box, in others, the color will display directly behind the text.