It can be a bit confusing figuring out R vs. RW and formal authoring vs. packet writing, but I'll try. This skips a lot of detail, and attempts to zoom on what you'd need to know if starting on writing CDs or DVDs in 2007...
Here's the executive summary:
R vs. RW disks
R(ecordable) disks are like writing in ink - once you've written, you cannot erase, edit or overwrite.
R(e)W(ritable) disks are like writing in pencil - you can rub out what you want to change, but what you write in there, has to fit between whatever else you have not rubbed out.
Authoring vs. packet writing
The "authoring" process is like setting up a printing press; you first lay out the CD or DVD exactly as you want it, then you splat that onto the disk. You can fill the whole disk at once, like printing a book (single session), or you can fill the first part and leave the rest blank to add more stuff later, like a printed book that has blank pages where new stuff can be added (start a multisession).
The "packet writing" process is what lets you pretend an RW disk is like a "big diskette". Material is written to disk in packets, and individual packets can be rubbed out and replaced with new packets, which pretty much mirrors the way magnetic disks are used. This method is obviously not applicable to R disks.
RW disks can also be authored, but the rules stay the same; you either add extra sessions to a multi-session disk, or you erase the whole disk and author it all over again.
When you overwrite a file in a packet-writing system, you do so by freeing up the packets containing the old file and write the new file into the same and/or other packets. The free space left over is increased by the size of the old file and reduced by the size of the new, rounded up to a whole number of packets.
When you "overwrite" a file in a multisession (authored) disk, it is like crossing out the old material and writing new material underneath, as one is obliged to do when writing in ink. The free space drops faster, because the space of the old file cannot be reclaimed and re-used, and because each session has some file system overhead, no matter how small the content.
Standards and tools
There are a number of different standard disk formats, all of which must be formally authored; audio CDs, movie DVDs, CD-ROMs and DVD-ROMs of various flavors. In contrast, packet-written disk formats may be proprietary, and supported only by the software that created them.
Nero and Easy CD Creator are examples of formal authoring tools, and several media players can also author various media and data formats.
InCD and DirectCD are examples of packet-writing tools, which generally maintain a low profile in the SysTray, popping up only to format newly-discovered blank RW disks. The rest of the time, they work thier magic behind the scenes, so that Windows Explorer can appear to be able to use RW disks as "big diskettes".
Windows has built-in writer support, but the way it works can embody the worst of both authoring and packet-writing models. I generally disable this support and use Nero instead.
RW disks and flash drives share a bad characteristic; limited write life. In order to reduce write traffic to RW disks, packet writing software will hold back and accumulate writes, so these can be written back in one go just before the disk is ejected.
What this means is that packet written disks often get barfed by bad exits, lockups, crashes, and forced disk ejects. Typically the disk will have no files on it, and no free space. When this happens, you can either erase the disk and author it, or format the disk for another go at packet writing. Erasing is faster, while formatting applies only to packet writing (it defines the packets).
I have found that packet writing software has been a common cause of system instability (that often ironically corrupts packet-written disks). The unreliability, slow formatting, and poor portability across arbitrary systems have all led me to abandon packet writing in favor of formally authoring RW disks.