Your definition is correct.
Firewire from your computer to one of the ports on the back of the external drive, Firewire from the second port to the next external, and so on until you reach the limit. that would be 63!
There will be no slowdown of data as the data does not travel through each device, just through the interface.
No, you cannot plug your iPod into the USB port on the back of the external, if it is connected to your computer via firewire. There would be no USB connectivity back to the computer.
I am about to purchase a lacie D2 extreme quad 500 gb hard drive, (simply because it fits perfectly in my budget and needs(firewire 800). And I read that it has daisy chain capability. I am very unsure to what kind of things I can do with that. I understand simply that I will be able to plug in another hard drive to the second firewire 800 port on the hard drive and access it on my macbook pro, but will the speed suffer? I mean will the performance of both the hard drives go down substantially? or only the second harddrive will be slower? also, can I attach a usb ipod to the port on the hard drive if my laptop ports are full/occupied? thanks for the help.