Try doing this instead:
Booting From An OS X Installer Disc
1. Insert OS X Installer Disc into the optical drive.
2. Restart the computer.
3. Immediately after the chime press and hold down the "C" key.
4. Release the key when the spinning gear below the dark gray Apple
5. Wait for installer to finish loading.
If this doesn't launch the installer, the contact Apple about replacing the disc they sent to you.
Thanks for that! Now I went to disk utility to erase any and all of my files... I went to erase the disk and see there are two disk images... I am guessing one is a partition since it is more indented than the other one... I click on the top one that reads 1 TB ST0005... ... It say erasing a disk deletes all data on all partitions... What is a partition!? And does it matter that is being erased too?