Midi track and simple instrument track...whats the difference

A simple instrument track just shows the synth's audio output track and not the MIDI input track. I think. I never use them. I don't like them.
When you insert a SIT you're also inserting a soft synth that someone else chose. I like to select my own sounds.
I usually have my MIDI already working, so I use the Insert Soft Synth menu to place a soft synth in the song, deselecting the 'Create MIDI Source Track' option since I already have a MIDI source track.
For the most control, I think you should use insert menu.
 

You don't have to; you can. I do.
I use my Yamaha keyboard to hear all my MIDI tracks while recording the song. Once I'm pretty well finished with the recording do I begin thinking about what sounds I want. Then I'll try some different soft synths to hear which will work best for me. But I often use the keyboad's sounds in the finished song.
 

My songs are pretty simple, guitars, keys, bass and drums, maybe some strings. So while recording and playing back while working on the song, I have the MIDI routed through my keyboard.
After I have everthing recorded, I may use a soft synth, but often I'll use the keyboard's sounds.
Soft synths I have used in songs are Edirol VSC, TTS-1, Session Drummer 1 and 2, Dimension LE/Garritan Pocket Orchestra, Triangle II, Dreamstation DXi, Roland Groove Synth... maybe a couple more. All of these synths came with my Cakewalk products.
All my 6- and 12-string guitars are real; every other instrument is a synthesizer of some sort.