Burned games: they come as an iso you burn them to a disc and put them in the drive.
A note however, the original xbox DVD drives are not so good (
http://www.xbox-linux.org/wiki/Xbox_Linux_...D_Burning_HOWTO ) so set booktype to DVD-R or DVD-rom (the wii section has several guides as you have to do it there as well).
You can merge several games into one, check some of the other threads in this section for guides.
Yes you can play games from the hard drive too.
The usual way to get stuff to the xbox is via FTP but XBMC has a port of SAMBA meaning you can grab it while you are on your xbox if you have file sharing on your computer. Note you can not stream games over the network (although you can stream media).
Sending full isos is not a wise idea so you need to break them down, many tools for this but I like the Xbox-Hq PC Essentials toolkit which comes with C-Xbox Tool. Send it, run the xbe you find in the first directory (other than any dash update).
FTP is simple enough, you need the IP of your xbox (grab it from your router DCHP table or try numbers one up, one below from your computer). port is 21, user is "xbox", pass is "xbox".
Your xbox will likely have several drives:
c:\ is the main drive with the important stuff and with many installs you will not be able to access it anyhow.
d:\ is the DVD drive
e:\ is the location of your saves and other somewhat important stuff but there may be a gig or two you can use.
f:\ is an extra space you can use, I estimate it will be around about 70 gigs for you to use.
All the other drives (x:\, y:\ and z:\ most likely) are system drives used by games to temp storage so leave them alone (although you can often grab some of the game art, music and what have you from them).