I'm just going to answer the levels part of this question, as you computer should be able to handle a LINE level signal to the LINE IN plug, but I can't be certain without knowing the hardware.
Best practice in setting levels is to turn every right down, then plug it in.
Set you instrument to 75% (rule of thumb) and your input gain to 75% (or unity gain).
[note: depending on you instrument it may have a different tone at different volumes, as such you may want to use a volume quieter or louder than 75%, if you do you need to accomodate it with more or less gain.]
Play as loud as you will when you will record and set the level to be hitting around -12db. I say around, as the number in not entirely important, but its a good point to aim for.
You will play louder when you record than when you soundcheck. If you first take clips (distorts) at any point either adjust your performance or adjust the gain (input level).
You ultimate goal with gain is to get as hot (loud) a signal as possible before distortion. This helps increase the signal to noise ratio. All gear inherently has a noise floor, which is where the electronic noise sits. Generally it is low enough that when properly recorded over it is inaudible.