How do I know if I have java, and if so, do I need it? I am concerned about the malware issue...
Yes uncheck Java so it's not enabled, check Javascipt on so it is enabled, and yes download the Apple Software update.
The malware folks are ahead of Apple as always.
Am I fundamentally disabling Java for future use? Is this ok?
No, you can enable Java if you need it but it's hardly used, use it only on sites you trust.