I'm assuming setting the password to my Zenphoto within the admin area is the same as setting it with my web host? Does Zenphoto's also mean no one can link to the images?

It is not quite the same -- the .htaccess password controls access to the entire directory, so a user without logging in won't even see the zenphoto front page.

The zenphoto password also means no one can link to the images, that is correct.

Use whichever is easier for you, whatever you prefer.

Yes, that's what's set with Dreamhost's .htaccess file. I'm just uploading the images for the first album. Can see all the albums with the initial image I uploaded for each. Thanks.