I'm not certain about the differences really... but from the three or four linux installations I've made so far, I always build a kernel from scratch. It also seems to make things go faster in general. And as far as I've noticed, nothing has stopped working.
As for building the kernel, the sources will come with pretty detailed instructions; also when running 'make menuconfig' you can press '?' to get more information about different options. The only thing you need to make sure is that you know exactly what kind of hardware you have.