After download, what do I do?

Hi – I am a Graphic Designer but I am new to wordpress and I would like to start using wordpress.org to design websites. I downloaded the software but it gave me a folder of all these files that I have no idea what to do with. I thought that everything was done online but it doesn’t seem to be the case.
1. What do I do with the files in the folder that downloaded?
2. Should I be using a different program such as Dreamweaver to design the website? What will I be designing it in?
3. Do I need to pay for hosting before I can even start?

Any help will be appreciated. Thanks!