I’m new to this, and really confused!

It’s as ‘simple’ as going through your index.php/wp-layout.css files. I think what you’d need to do is replace any diaryland tags with the appropriate WordPress ones (found in readme.html). I say ‘simple’ because in theory it sounds that way, but I haven’t been able to do it myself (taking an existing template and converting it.) But you seem to have more knowledge than I do about such things if you’ve made your own diaryland template, so it should be relatively easy for you to do so.

As Cena says, probably the quickest thing to do would be to cut and paste the WordPress code into the html you’re currently using for diaryland, replacing the diaryland variables with WordPress ones. (The readme.html in your WP zip file has a list of most of the major tags).
You also need to remember that a WordPress template uses a bit of extra code that diaryland ones don’t. This code needs to go at the very top of your template:

< ?php /* Don't remove these lines, they call the b2 function files ! */
$blog = 1;
require_once('blog.header.php');
require_once($abspath.'wp-links/links.php');
require_once($abspath.'wp-links/links.weblogs.com.php');
?>
You also need to use the start and end codes at the beginning and end of each entry block. So to replicate the effect you’ve got at the moment, you’d replace %%entries%% in your diaryland template with this:

<?php if ($posts) { foreach ($posts as $post) { start_b2(); ?>
<?php permalink_anchor('id') ?>
<?php the_content() ?>
<br/><br/>
Amy ranted at "><?php the_time( 'g:i a') ?> on <?php the_time('F j, Y') ?><br/>
<?php comments_popup_link('No-one ranted back', 'One ranted back!', '% ranted back! '); ?>
<?php trackback_rdf() ?>
<?php include($abspath . 'b2comments.php'); ?>
<?php } } // end foreach, end if any posts
?>

You’d probably want to mess around with that and your sidebars to incorporate other features such as categories, entry titles and the links manager; have fun experimenting!

Ooh, one more thing, notthatugly, you say to put that first piece of code at the very top of my template. Where exactly do you mean? Is it in between two tags or something?

Hmm, for some reason its not working for me, I’m not sure why.