If it makes you feel any better, I've been doing the computer stuff for years, but I'm new to the stereo game. I feel like a complete idiot when it comes to amps/tubes/DACs/speakers. We're all here to help each other.
1. The FLAC vs. MP3 debate: the sound difference between FLAC and bigger MP3s is not very significant. However, if you want to get rid of your CD collection, FLAC is a great. Also, you can get smaller files from FLAC, but from MP3 you can never get bigger. If you want to convert to a smaller MP3 file (e.g. for a portable player), it's better to go from FLAC than from a bigger MP3. I won't explain why; trust me, you don't want me to get into this.
2. If you are using a portable player (e.g., iPod, smartphone), you ARE space-limited, so MP3 is better, and you may even want a lower bitrate (smaller but less accurate files). None of these devices have as much disk space as a typical laptop or desktop computer.
3. As a result, what you may want to do is rip (pull the music off of the CD) into FLAC, and then convert into MP3. Regardless, the advantages of FLAC outweigh the problems; I'm about to redo this (I have most of my music in MP3), and I'm going to use FLAC and convert from there. Think of it this way: FLAC is an audiophile thing, whereas MP3 is sort of for the masses. I bought my M3s because the sound on whatever from Best Buy is not to my taste. It's not a perfect comparison, but it should explain why very few programs/players support FLAC, while everything supports MP3.
4. You are about to start a big task, and it makes sense to get the right tools, even if they cost a few bucks. For example, check out this: http://www.dbpoweramp.com/dmc.htm
I don't even think you would need to buy it; you can get it for free for 21 days (should be plenty of time). I haven't used this program personally, but I hear it's pretty awesome for both ripping and converting, and I know it can convert your whole library in batch (all at once). Also, it uses multiple CPUs and cores, which means it's probably faster (if your computer says "Core"-anything, like "Core 2 Duo" or "Core i5"). If your computer came with Vista, you almost certainly have this feature, and it will save time.
5. If you aren't going to use a portable player, I don't see why you wouldn't use FLAC if you have the disk space. Each CD is 600-700MB of data, which means 60-70GB per 100 CDs (1GB is about 1,000 x a MB). Count your CDs, do the math, and that will tell you how much disk space you need, and your computer can tell you how much disk space you need. If you don't have enough disk space, you'll need to get an external hard drive (and you may want to do this anyway).
This might sound scary, but these things are inexpensive (figure $100-200 for a large and good drive), can be bought at Target, Walmart, Costco, Best Buy, etc., and just need to be plugged in to your computer (and power outlet). If you can connect your computer to your DAC via USB, you can install an external hard drive. I typically buy Western Digital in both personal and professional situations (and I've probably bought hundreds of thousands of dollars worth hard drives professionally).
6. You will need a second hard drive for backup. If you have a fireproof safe, I would store it there; it's a full and complete backup of all of your CDs, and therefore is worth thousands (perhaps tens of thousands) of dollars. Don't worry about this, though, until you have at least made some progress.
To sum up, unless you are using a portable player, it makes sense to just use FLAC. Read the manual for whatever ripping software you use, and be patient with yourself.
If you are using a portable player, post back here with what kind and how much space you have, and (if you can) a rough number of how many CDs you have, and I'll try to check back regardless. Also, please post what your computer is (brand, model, whatever info you have), because there's one more consideration with hard drives (USB2 v. 3), but it'll just be easier to give you a recommendation than to explain.