Menus help you display links to both your own content, as well as external content. Your theme may have one or more integrated ‘Theme Locations’ for menus, and you can include any number of menus in your sidebar with the Custom Menu widget.
The TwentyTen theme (which you’re probably using) has one menu theme location (the big black bar underneath your header image), so if you want to use a custom menu in there (rather than showing all pages), simply select your custom menu in the dropdown under “Primary Navigation” at the top left of the menu page (Appearance->Menus).
To create a menu, simply go to Appearance->Menus in your dashboard, and click the tab with the plus sign ( + ) on it. Using the boxes on the left, choose the pages, posts, or custom URLs you’d like included in your menu, and click “Add to Menu.” Don’t forget to click ‘Save Menu’ after making any changes!
After adding items to the menu, note that you can easily drag and drop them around to reorder them, or to assign hierarchy. That is, if you pull a menu item a little to the right, it’ll be nested underneath the menu item above it. As always, remember to click ‘Save Menu’ after making any changes.