In the good ol' days, when you wanted to listen to music, you listened to a whole album. A CD was a nice, functional unit of music. Still, if you had the time, it was generally preferable to make a party tape or disca compilation of your favorites. New technologies produce new opportunitiesintroducing the playlist. It creates an experience akin to an instant, malleable, best-of CD.
A playlist is a set of songs that you build and sequence yourself. By making a playlist, you are not affecting your iTunes Library at all. The library is where all the songs live; the playlist is just a convenient way to access some of them. It's also an essential building block if you want to burn a CD of some tracks (as Christopher wants to do for the birthday party), add a bunch of tunes to a slideshow in iPhoto, or organize your music collection for your iPod.
You can add individual tracks or whole albums in many ways. This represents just the basics. No matter what method you use, before you know it the Jessica's Birthday playlist will have a number of songs that you can play back-to-back.
You can include a song in multiple playlists. You can even add songs to one playlist from another by simply dragging songs across the playlists.
Deleting a song from a playlist will not delete it from your library. Deleting it from the library, however, will remove it from your computer. You'll get a warning dialog, but be careful when you delete.