Kelly,
Technically the
Disney Dining Plan does both. You are paying for meals ahead of time, and it is intended to save you some money on your overall dining budget. However it is a plan that often does not save you money, unless you pick the right one for your group. For instance with my family (which includes two little girls) we rarely eat as much food as the plan offers. So we end up not really saving money, as we would have to go to more meals and be served more food than they ever would really be likely to eat. So figure out what you would do
without the plan, then compare that to the cost of the plan.
As for how it works, when you are at a restaurant let them know you are on the plan. When you are paying for the meal give them your Key to the World card (your room key), and they will take the credits for that meal off of the card. The receipt will even show you how many remaining credits you have left.
The rest of your question cut off, but remember that you can use your credits whenever you want during your stay, in any order. The Dining Plan flyers show more detail on this, but if you have other questions, feel free to write me back from my bio page and I can answer them for you!
Have a magical (and delicious) vacation!