I don't have the book so I'll have to guess here.
I'm thinking they are suggesting you work in intarsia. If the piece is worked in the round you won't be able to do an intarsia pattern in the normal method, instead, you would need to cut the yarn each time.
If you are not to work the piece in the round, I would suggest you wind some bobbins and not cut the yarn each row. There are lots of resources for basic intarsia. Almost any intro book for knit will cover it on some level.
As for your two questions, they are really one in the same, you would secure the yarn and ensure a hole-free fabric by weaving in your ends properly. I recommend you read this article from knitty:
Use this technique to work your threads cleanly into fabric and make sure you do so in such a manner that you secure one color section to another.
I hope this helps.