I take it you have a desktop PC, if this is the case, then yes the router does replace your existing modem.
However as for how best you should go about setting up your wireless connection, you would do better talking to the people who specialise in this. I suggest you close down this thread and open a new one in the 'Networking' forum.
To close this thread scroll down till you see a button on the right with 'Resplved' on it and an empty box along side of it. Click the box and a tick will appear, then click 'Resolved'
On the righthand side of this page you will see a list of the 'Forums', scroll down and click on 'Networking' :¬]