"picking up stitches and knitting"

I have watched the video on here like a thousand times. It’s not helping me.
this is the link to my pattern http://cache.lionbrand.com/patterns/khs-happyBabyBlanket.html

i have finished the first square and don’t know how to pick up stithces for second square, what side is up? where do I insert? AHHH!! I’ve been trying to figure this out for weeks, please help.

[B][B]SQUARE #2[/B][/B][B][COLOR=Red]With MC, pick up and k 40 sts along cast-on edge[/COLOR] [COLOR=Red]of Square #1[/COLOR] to center, place marker, cast on 40 more sts (knit into last st picked up, place new st made back on left needle or use backwards thumb loop method).[/B]

[COLOR=Black]That should give you a clue as to where to pick them up. Here’s two articles that might help, too.
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http://www.knitty.com/ISSUEwinter04/FEATwin04TT.html
http://www.knitty.com/issuespring05/FEATspr05TT.html

This is a general question for people who have knit afghans (which I never have):

Why cast off the squares? Why not leave the stitches live on holders or waste yarn and continue knitting with the new yarn for the new square? Would that mean it’s not a true “afghan”? Would it change some essential quality of the finished product?

I’d like to make one, and I would certainly be tempted not to cast off. Casting off is so…FINAL!

They are a little unclear. However, here is what I would do: I would pick up the 40 stitches (just pick up the bottom part of each of the original cast-on stitches) on my RIGHT hand needle, with the RIGHT side of the fabric facing you. Then cast on the additional 40 stitches, the way they tell you to. NOW, when you turn the fabric over to begin the next row, that needle will become your LEFT hand needle and you will be about to begin a new row on the WRONG side. I’m saying this because it then tells you to do what you did with square 1 all over again, and row 1 of the pattern begins on the wrong side, so you’ll be all set to go.