The firewall sits between your network and the internet.
Your network will consist of any machines which are connected to the router either by Ethernet cable or wirelessly. If you don't set up a secure wireless connection, then anyone with a wifi enabled PC can hook into your network and use your internet connection. What's more, if you have setup simple file sharing and shared any of your folders, they only need to guess the name of your workgroup (probably WORKGROUP or HOME) in order to access your machines (unless you also have software firewalls on your machines.
You router should include instructions for configuring it (where else would you have named it?). Most routers also offer configuration via your browser (I can access mine by typing 192.168.2.1 into the IE address bar).
From there you can go to the "Wireless" section and select the type of Authentication to use. Once you have done this, you then configure the settings on your laptop or other wifi device to match, so that only your machines can connect wirelessly.