for the red and white, you need to put them together and solder them, just as it says, then the insulating part is just covering it with something so the signal doesnt get awry by coming in contact with other metal conductive parts of the electronics. i used electrical tape on mine, but you can use heat shrink tubing, little bits of packaging foam, even masking tape or duct tape if need be.
the important part is to make sure you get a good connection between the two wires, as if you dont the pickup wont function properly(i learned this the hard way on my first ever pickup job)
other than that your just going to put one of the other wires to the hot output where your old pickup was connected on the volume knob, and then ground the other wire by soldering it to the back of the volume pot casing. since you are new to this i feel the need to tell you that you should first strip a length of the wire(about 1/8 inch) and solder the exposed wire to the ground.
in case youve never soldered before, make sure not to try to melt the solder off of the actual soldering iron, this just makes a mess and ruins the tip. you want to hold the iron on the exposed wire, then reach the solder in to the part you want to solder. after a few seconds teh heat from the iron and the fact that the metal parts are conducting the heat will melt the solder onto the part. remove the solder, then remove the iron. if the wire is being real springy then grab some needlenose pliers or something before removing the iron and hold the wire down for a few seconds while the solder dries.
alot of times it helps in these kind of jobs to get some type of desoldering tool to remove the old solder so you dont make a huge mess(once again i learned this the hard way my first time). you can either get some desoldering wick, or my personal favorite are desoldering bulbs, its a little rubber teflon coated bulb that you can use to suck up the solder, they cost 2.50 at radio shack.