Spices are one of the cornerstones in Indian cooking. There is no dish that doesn't have some, and usually a lot, spices in it: even ice cream, bread, and candy is usually spicy. Most spices are very healthy and good for digestion as well, so it's important to know your spices, and how to treat them.
Mixtures of spices are not often used, usually only for seasoning, usually each spice is added seperately, in seperate stages of the dish. The term 'masala' is used for any type of spice mixture, regardless whether it's ground spices, whole spices or even pastes of wet spices (garlic, ginger, chili pepper).
Seeds can best be ground right before usage: ground spices lose their flavour relatively fast. If you want to store powders, put them in an airtight can and preferrably store in the freezer: this way they remain relatively fragrant and fresh, however, grinding 'on the spot' is still recommended.
Almost all spices are roasted before usage, most in a dry pan, some (e.g. fenugreek) in a bit of oil. Some spices (such as cumin) you can leave until smoke is rising from the pan: this is good, because it removes the more volatile, sharper taste and brings out the more nutty character of the spices. After heating, cool down a bit before grinding.
Spices are added in different forms, in different stages of the cooking cycle. Usually some spices are added to the oil or ghee before the onions, this is often called the 'whole masala', whole spices such as bay leaves, cumin, mustard seeds, but also cardamom, cinnamon and cloves, and dry red chili pepper are fried in the oil, until the seeds begin to pop or the smells come free. Then the onions are fried, after a while garlic, ginger, green chilies and such are added (sometimes referred to as the 'green masala'), after that tomatoes (if any) and spice powders (the 'ground masala') and salt. When the tomatoes are soft, curd, vegetables and/or meat is added until done, and the dish is served (sometimes) with some seasoning.
A short description of commonly used spices:
cumin
long, rice grain-shaped green and brown seeds, used in a huge variaty of dishes (relatively well known in western cooking as well)
coriander
round seeds from the coriander plant, of which the leaves are also used a lot; fine, fresh/nutty taste, used as whole or ground masala
turmeric
yellow root, mostly sold as fine yellow powder, used very often both for the nice yellow color it gives to the food (colors are very important in the Indian kitchen) and it's not very strong, but still slightly hot taste
usually added as part of the ground masala
mustard seeds
little round black or yellow balls, the black form is mostly used, often added to fish and vegetable dishes with the whole masala
chili
in the Indian kitchen usually little green peppers are used to add to the dish at the same time as garlic and ginger, while red pepper (of the same variety, also the small, spicy ones) is added as part of the whole or ground masala
black pepper
doesn't need introduction I guess ;) not used a lot, mostly in garam masala and cucumber salads (raitas), can be heated before use but not really necessary
nutmeg
nutmeg is a round nut with a very distinctive, strong smell, not used often but some ground masalas (e.g. garam masala) contain it
mace
mace is the skin that covers nutmeg on the tree, it has quite a similar taste , albeit somewhat softer
also mostly used in ground masalas
cardamom
cardamom pods are available in green and black varieties the green ones have a fresh, spicy peppermint kind of flavour, while the old have a far thicker, somewhat tobacco-like smell
used as whole masala in curries and (green) desserts
fenugreek
seeds are light brown and irregularly shaped, have a sweet smell, need to be fried in a bit of (usually corn) oil until they are darker brown and start to pop; after frying they taste nutty
fenugreek is very easy to sprout, yielding tasty alfalfa-like sprouts, the mature leaves are usable as herb or vegetable (like spinach, only with a sweeter taste and stronger smell)
fennel
fennel seeds look a lot like cumin, but are greener and smell a bit softer, they are used in chicken and some spice mixes
onion seeds
tiny black seeds, look exactly like nigella but have a stronger (not very nice, a bit like old onions) smell, used mostly in batter for frying
nigella
also tiny black seeds, less strong and somewhat peppery, not used very often, also mostly in batter for frying
bay leaves
laurel leaves (in India they actually use a different variety, Indian bay leaves are not easy to get here though), use as part of the whole masala
ajwain
look like small roundish cumin seeds, smell a bit like thyme, used in certain spice mixtures and samosa dough
asafoetida
very strong smelling resin-like gum (called 'devil's dung' in several languages), used in very small quantities to give extra flavour to dishes
usually added with the whole masala, although it's a powder it needs to fry a bit
DISCLAIMER: I am far from a 'guru' in this area, I'm basically just writing down what I think I understand with my very limited background in home cooking... My information may be partially or totally wrong; if it is, please drop me a line...