Help with doing a factory image restore on an inherited Inspiron 1545

I inherited a Inspiron 1545 with Windows 7 from my grandfather recently.  The computer was purchased shortly before his death, and it runs fine.  However, I'd like to make this computer my own; it's a little unsettling using my dead grandfather's user name, and I think it would be easiest to start fresh rather than messing around with it as it is. 

I don't want to keep any of his old files; I just want the computer to be as it was when he first got it.   If it had come with a Windows 7 installation disk, I would just install a clean copy of Windows, but unfortunately, it didn't.  There's a recovery drive, but my grandfather was notorious for tinkering around with computers.  I don't have any experience using a recovery drive to do a clean install, and I'm nervous that he might have deleted something I need in there. 

I'm thinking what I'd want to do is a factory image restore, but I wanted to be sure that was the correct step to take.  I have a few concerns, though:

1) When I boot the computer, it asks me to choose from two different Windows 7's.  I'm not sure why it says that - are there two different operating systems on the computer?  

2) For some reason, I'm never asked for a password when I start the computer.  That's fine since I don't have the password, but I was wondering if that's something I'll need?  I don' t want to accidentally lock myself out of the computer.  (That's also a reason that I want to start over - not having the password is probably going to be a problem down the line!)

So, to sum up - will doing the factory image restore allow me to rename the computer, reset the user name, set a new password, and remove all of his old files and programs?