When you click OK in the type box, by default Photoshop 4 pastes it into a new layer, colored with the current foreground color. Then Photoshop 3-like, once you leave the Type dialog, your new type appears as a selection, so you can change the fill, apply a filter or whatever. Of course, once you click out of the type dialog, your text becomes just a collection of pixels like everything else, and it is no longer possible to edit it as text. For complex text layout, or even for kerning, you'll need to select sections of your completed type, or even individual letters, and move them around. A drop shadow creates a 3-D effect, making a graphic appear to float above the background.
Drop shadows are especially useful to add emphasis to display type on web pages.
There are several ways to create drop shadows, but the easiest is to use the Eye Candy Drop Shadow filter. Again, put whatever you're going to give the shadow in its own layer, separate from the background. You can adjust the angle of the shadow, the offset, the blur and the opacity. Play with the setting until it looks right to you. Then click on the large checvk-mark in the upper right.