Multiple Loops Confusion

I posted yesterday and the great people here pointed me to some documentation as well as some examples of people with similar issues, but I’m still not getting it.

This is the theme I’m trying to work with here. http://equilibrium.madebyon.com/

My index.php code is here. http://pastebin.com/m55ad34b0

I’m not getting why to query_posts() are being called to build the top section for featured posts and how that effects the recent posts on the bottom.

What I was trying to do is implement PREVIOUS and NEXT links for browsing older posts. Can anyone help shed some light on what’s going on with this code to me?

Thanks in advance.