It did take a bit to figure that all out -- there's no obvious clear explanation of it at the main site, though I'm sure they must say it somewhere. After reading pages and pages, and datasheets, etc.. it did eventually become clear.

Also, it seems the 328 chip has an onboard resonator, too.. so it will work totally standalone with a 5V supply and nothing else, just like the pic/picaxe stuff!

SparkFun sells the 328 with and without the Arduino bootloader preflashed, for only about $1 difference.

Cheers