Many folk are used to Windows so those storage spaces are like drive letters.
As to the " strange thing is that, there's no SD card in the device. " is that memory storage areas can be listed as such and it's just some flash chip on the motherboard. Since these cheap tablets can't have a rewrite of the OS to name such to avoid your questions, it falls out just like you see. A mess.
As to the SD card issue, try a new blank card. You can check the manual about formatting the card you have but some folk are blissfully unaware about how you can't be sure a card will work hear and there.
I'm new to android, so please help me as I get up to speed with this OS. I recently got a Blu TouchBook 7, but I don't understand a couple things about it's internal storage. Firstly when I select Settings>Storage, I notice that there are two sets of internal storage in the right hand column, one with a capacity of 504Mb and the other with a capacity of 2.08Gb. Please explain these two sets of Internal Storage. Secondly, the device seems to treat the 2Gb portion of the memory as an SD Card (this is odd). For example, if I select Settings>Apps, in the right hand column, there are four tabs (Downloaded, On SD Card, Running & All). If I select "On SD Card", I'll see a list of all the apps. The strange thing is that, there's no SD card in the device. Also, If I use the on board file manager (ES File Explorer), it shows me stuff that it says is on the SD Card. Again, there's no SD card installed. I then realised that it was treating the 2Gb portion of the internal storage like an SD card.
Finally, I decided to install an SD card, I returned to Settings>Internal Storage, In the Media Scanning section at the top of the right hand column, I checked the checkbox that says "Enable Media Scanning on SD" as well as the other one that says "Enable Scanning on USB". i scrolled down to the bottom in the EXTSD section, there was no info om my SD card. There's a grayed our section that says "Mount SD card" and "Insert SD card for mounting". i took the card out, put it back in, restarted the device, but no info on the SD card. This is a card that I had in another device (Blackberry Storm), so it should work.