A muslin is like a test run of the garment to make sure it fits you. It's important if you're picky about fit, because you can find problems before you start cutting up your nice fabric. But muslins are a bit of a pain indeed, because it's "prep" work and you can't use it for anything afterward (although you can cut it up to make another muslin for another garment later on).
This is a good place to get a crash course on making a muslin: http://www.alleycatscratch.com/lotr/PatternMod/Muslin.htm
Having said all that, I want to underscore that the muslin step of the process is completely optional. Some people think it's necessary, others just start sewing their final fabric with abandon. I actually made my Galliano jacket from the red satin from day one - I never cut or even pinned any sort of muslin! But I'm a bit crazy.
If you want to make one, go for it - it's good practice and you can mess up as much as you like because no-one will see it. Don't buy new fabric - use old curtains or bedsheets (this is what I do). Also, you can do as much or as little alteration as you like. A quick and dirty way to work with your muslin is to cut all the pieces, sew them together, try it on, and then just make a few notes about seams you want wider or smaller on the final garment. Then just refer to the notes as you make the final one.
What I'm trying to convey is that you can get as complicated as you want with a muslin - but you can also just use it as a test run and simply try it on for reference. Or you can sew by the seat of your pants and dive right in.
P.S. Although I do hate muslins because I feel like I'm getting nowhere, I also get a sort of tortured enjoyment out of it, because even though it's a pain to make alterations and then transfer them back to the pattern, it can help quite a bit with fit, even if you just make a dart longer or similar. It's like flossing - not much fun but enjoyable in a masochistic way, and then you feel good about it afterward.