Ragash,
You are not a total idiot. You are, however, someone who did not read and understand the Game Manual. Read the manual! The description of Party Formation and combat is found on pages 70-71.
If you want to know how to correctly develop characters, a good site to read is:
http://www.geocities.com/jandrall/
There are many sites that provide walkthroughs for this difficult game. I don't recommend them. The game is much more satisfying if you tough it out.
The party that I'd recommend to you (and I've played several to completion):
2 Lizardman Fighters (use only swords with them)
1 Rogue, Ninja, or Bard (to pick locks and disarm chests)
1 Ranger (you'll need the scouting ability)
1 Priest (the best healer)
1 Bishop (access to all spell books)
If you don't know what to choose, hobbits are a safe bet for almost all non-spell casters. Again though, read the book or use the site above for individualized choices.
I'd put the fighters up front, the lock-picker on one flank, the ranger on the other, the priest in the back, and the bishop in the middle. The Bishop is a weakling and should be shielded from physical combat as much as possible early on.
Spells you need to get early: Heal Wounds, Armorplate, Missile Shield, Enchanted Blade, Cure Poison. Before picking any others, buy every spell book available from the merchants in Arnika and other locations. You'll want to hoard your spell picks until you read higher levels. Eventual must-have spells (my opinion): Soul Shield, Element Shield, Haste, Cure Disease, Shadow Hound, Set/Return to Portal, X-Ray, Heal All, Restoration, Resurrection.
Hybrid characters are more difficult to develop. Which characters are hybrids? Lords, Samurais, Ninjas, Valkyries, Monks, Bishops. They level up more slowly and as such, get hit points more slowly. I have recommended 2 hybrids to you because:
1) Until you understand what spells are worthwhile, you'll want access to every spellbook and the Bishop gives you this.
2) You'll eventually want to play a Faerie Ninja. You might as well consider one for your first game.
If you avoid leveling up until Arnika, then take your level-ups just outside the gate. Arnika can get strange if you're walking around with available level-ups.
Finally, have fun and use the Wiz8 forums. Most everyone is polite, patient, and helpful.