A headset is basically the piece that holds the fork to the frame of a bike, thereby allowing for steering. A sealed bearing headset normally has a plastic or rubber gasket to protect the insides from dirt.
There are a lot of special tools you can use for the installation. If you don’t want to shell out a grip of change for these tools, which may be a little out of the reach of your wallet, there are cheaper alternatives (a wooden block and a hammer, for instance). Worst comes to worst, you can always ask your local mechanic or read some bike books for tool cheats.
Park Tools makes these:
Fork crown facing tool
Headset facing tool
To install a threadless headset, you are going to place the bearings first, both top and bottom, on the opening where the fork is supposed to enter. There are integrated bearings in some frames as well, so you don’t have to worry about them falling out from the bottom. Put on the spacers, the headset and the dust cap and screw it all down.
The threadless headset has no threading on the on the steering columns so you only have to push them onto the column.