Is it accurate to say then that the two recordings would be of equal audio quality?

The two recordings would not be of equal audio quality. The VBR file will be slightly lower quality. It would be significantly smaller than the 320-CBR file (this is VBR's advantage), but certain parts of the file would be of lower quality than the 320-CBR file.

HOWEVER, and this is the key, the lower-quality parts should (if the VBR encoder is a good one) be not noticeable. Because it will only lower the quality in parts that can stand to have their quality lowered without you being able to notice it.

So, although the two recordings would not be of truly equal audio quality, they would appear to have equal audio quality to your ear. But the VBR file will be smaller than the 320-CBR file.

When you choose the "level" of VBR (different software lets you select this level in different ways), what it does is choose where those quality cutoff points are. The higher you set the VBR encoder, the more often it will choose to encode a frame at 320 instead of 256, for example.

LAME: Ok, I'm a little slow. It looks to me like LAME is some sort of plug-in, rather than it's own software (like say, MusicMatch).

LAME is an encoder, not a ripper. It can work either as a plug-in (in its DLL form), or as a stand alone command-line program that you feed WAV files to.

The difference between encoders and rippers is explained here in the FAQ.

I got the sense that maybe I have to rip the files to my hard drive seperately and then encode them as the second step. Is there software that does both?

Yes, that is correct. It is two steps, ripping followed by encoding. Again, this is explained in the FAQ.

Most software will allow you to do both steps together, transparently. The software handles all the messy details of how to get the files shuffled around to get the ripping and encoding done.

Examples of ripping software which allow you to use LAME as the encoder are Exact Audio Copy (EAC) and AudioGrabber. I'm not sure, but I think you can use LAME in either form (EXE standalone or DLL plug-in) with both of these programs.