The first question is very good and the verse you partially quote regards sanctification.
You might have heard Christian salvation discussed in the following way:
I am saved----justified. This is positional
I am being saved----sanctification. This is the forging of the metal, the working out.
I will be saved----glorification. At the Resurrection we will be glorified.
On the working out, one of the best sermons on the topic I heard a number of years ago and I excerpt some of it below. Since you are exploring Christianity I'm sure you won't mind clicking for the remainder.
The fifth motive for believers’ working out their sanctification is understanding the consequences of sin. Although God is loving, merciful, and forgiving, He nevertheless holds believers accountable for disobedience. Like John, Paul understood well that “if we say that we have no sin, we are deceiving ourselves and the truth is not in us. If we confess our sins, He is faithful and righteous to forgive us our sins and to cleanse us from all unrighteousness” (1 John 1:8–9). Knowing that he serves a holy and just God, the faithful believer will always live with fear and trembling. Feartranslates phobos, which describes fright or terror (cf. Matt. 14:26; Luke 21:26; 1 Cor. 2:3) as well as reverential awe (cf. Acts 2:43; 9:31; 2 Cor. 5:11; 7:1). Trembling is from tromos, which refers to shaking and is the word from which the English word tremor derives. Both of those are proper reactions to the awareness of one’s own spiritual weakness and the power of temptation. The Lord seeks such an attitude in His children, as His words in Isaiah 66:2 indicate: “To this one I will look, to him who is humble and contrite of spirit, and who trembles at My word.”
An important Old Testament truth is “The fear of the Lord is the beginning of wisdom” (Ps. 111:10; cf. Prov. 1:7; 9:10). This is not a fear of being doomed to eternal torment, nor a hopeless dread of judgment that leads to despair. It is rather a reverential fear, a holy concern to give God the honor He deserves and avoid the chastening of His displeasure. Such fear protects against temptation and sin and gives motivation for obedient, righteous living.
Aware of his own personal weakness, Paul spoke of his “fear and … trembling” as he ministered to the church in Corinth (1 Cor. 2:3), and later of those believers who received Titus with the same kind of “fear and trembling” (2 Cor. 7:15). This kind of “fear and trembling” is closely related both to obedience to the Lord and to love and affection for Him and for fellow believers. It is for that reason that Solomon could declare: “How blessed [happy] is the man who fears always” (Prov. 28:14).
Such fear involves self-distrust, a sensitive conscience, and being on guard against temptation. It necessitates opposing pride, and being constantly aware of the deceitfulness of one’s heart, as well as of the subtlety and strength of one’s inner corruption. It is a dread that seeks to avoid anything that would offend and dishonor God.
http://www.gty.org/resources/bible-qna/BQ052112/what-does-it-mean-to-work-out-your-salvation
Another good source:
http://www.desiringgod.org/articles/why-must-we-work-out-our-salvation