Is this too basic of a question??
Not really no because everyone here had to figure out the answer as well in the beginning.
The best place to start learning anything is at the beginning is it not?
As for do you need two OS's, only you can answer that as we don't know your needs.
Can you only have puppy installed?
Yes and backing up windows isn't necessary, just partition and format over it.
I don't know how puppy is installed as I've never ran it but I believe, without going and looking for myself, it has it's own installer.
It should handle formatting and partitioning for you if that's the case as a lot of distro's already do.
I don't know the spec's of your pc, but if it's low end with a small amount of ram you might consider handling the partitioning yourself as it isn't that hard or complicated.
I use gparted and keep a current copy handy and do handle my own formatting and partitioning.
I've found that at times the once over formatting isn't always adequate so using gparted to format and partition, then allowing the installer to format again gives me clean partitions.
Back to your pc specs, if you only have something along the lines of 256 megs of ram, I would set your first partition [hda1] as swap and give at least 500 megs so you'll have a bit of oomph in your speed.
Hda2 would be root or /.
Check and see how much space is recommended at Puppy.
You may want to go with only those two partitions if space is a commodity.
If you have about a 20 gig drive you might give / 10 gigs and leave the rest for /home as hda3.
Everyone has a personal preference as to whether they format as ext3 or 4 or rfs.
I would go with what the distro recommends which will probably be ext3 until you have some experience under your belt.
I've used all 3 and only had one bad experience when rfs gave me readings of bad blocks on my hd.
ext4 seemed stable the time I used it and I did see a small increase of responsiveness.
ext3 is pretty much the norm and what I normally use as it does the job fine form me.