Inlay is basically making a cavity in a material to fit in an object to the same height (not the best explanation in the world but you get my drift) - take a look around the house, coins, washers, old bits of jewellery, scraps of metal, wood or whatever, it's all good practice and the whole technique soon becomes quite clear.
As for tools - take a look at Setch's (or could be Sambo's) home made router base if you're short of money or get the Stew Mac one if you're feeling a bit flush (don't get the Dremel one, it's not really that well made). For router bits i know a lot of people use, as i do, downcut bits designed for PCB (printed circuit board) work or ask your dentist for some of his 'blunt' bits as these are more than sharp enough for cutting wood. Apart from that the only other essential is a jewellers piercing saw and these can be had for $10-15 from jewellers suppliers or probably your local continents Ebay.
Larry Robinsons 'Art of Inlay' is a nice book to have as an inclusive starting point or Grit Laskin's 'Guitar makers canvas' if you really want to dedicate your life to inlay (take a peek inside and you'll see what i mean !)
Jem.