A paper wallet is a way of storing bitcoins outside of the digital world (i.e. computers) as a physical piece of paper. You can secure a paper wallet like cash or anything else of real-world value (e.g. keeping it in a safety deposit box).
If you follow good security practices, paper wallets are one of the safest ways to store your Bitcoins.
Paper wallets are created by printing a new Bitcoin Wallet (i.e. public address) and private key onto a piece of paper. Bitcoins are then transferred from another "live" wallet to the paper wallet's public address for safekeeping.
Yes. While regular Bitcoin wallets allow you to transfer (withdraw) a portion of a your bitcoin balance (e.g. to buy goods at a store), a paper wallet only allows you to withdraw the entire balance.
When you want to withdraw from a paper wallet, you import the full balance to a new wallet address. Once the transaction is complete, the paper wallet should be discarded and not used again.
Your first step is to print a paper wallet. There are several tools available to produce paper wallets, including: