I see with your questions that you are indeed very new to this. first of all welcome to the UNIX/Linux universe. We welcome new users.
Second of all I hope you have some patience and some will to learn. Linux is not windows. It's different and also better in a lot of ways.
Now I will try to answer your questions but some things you might still not get at first. If you researched a bit on google you would find a few good tutorial on installing the ATI drivers on Linux, but they are not current and the installation changed quite a bit. These days it is very easy to install.
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1. by "install your kernel source" do you mean installing the distro on your pc?
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No, Kernel-source are the source packages that are used to compile your O.S kernel. A kernel is the sole of the operating system. It contains all the hardware modules to control your hardware and he is the "go between guy" that translates everything between softwares and harwares.
Now, kernel-sources are with every distro outhere and can be installed like any software. In Mandriva, Suse or Fedora (Red-Hat) for example you install them with the RPM system (Red Hat Package Manager) which is a software installation system common to thos 3 mainstream distros. On Debian type distros they have a similar package management system and the files end in .DEB instead of .RPM
My Kernel is version 2.6.12.12mdk (Mandake/Mandriva). I simply went into the control panel, intall software, searched "kernel-source" and installed the the kernel-source 2.6.12.12mdk.
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2. How do you "install ATI drivers for linux from the shell script"
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Dowload the linux drivers from ATI, go into that directory where the file is, open a console (shell) from that directory, change to root with the "su" command and inputing your root password and type "bash ./ati-driver-installer-8.23.7-i386.run.
Then a familiar interface will appear. Leave everything to default.
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3. How do I run "ATICONFIG"? I type it in the terminal, says no command.
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Once installed the drivers will let you. Open a console, su to root (su means "super user") and enter "aticonfig". Instructions will be displayed and follow them to create your own personal configuration. Then reboot.
Hope I helped you out, but some of this stuff still requires a lot of basic Linux know how.