"it says change needles and knit 2 rows, is this including the needle change or do i knit onto the new needle size and then knit 2 rows."
Your first thought is right. With your new size needle knit the sts. from the old size and then one more row.
P.S. When you finish the first row get rid of the empty needle. Remember to pick up your second new size needle after you finish the first row. I'd bet a lot that every knitter has plunged on and knitted with 2 different size needles. Every body out there who's done it - raise your hand.