are you supposed to extract everything to add-ons?
Depends.
or not extract?
Well, you have to extract it. The engine can't read through .rar and .zip files unlike others.
do you put it in add-ons or the second gmod folder?
Again, depends on the add-on.
Most of the time when you download an add-on it's already in a folder that has probably the same name as the add-on it self. Now, if the creator isn't a handicap he probably put all the files in there, making them ready to be injected with the game.
If it isn't like that you'd have to do it manually and put the files into the second gmod folder (username/gmod/gmod) and override everything (models, materials, sound, lua. whatever it asks for).
what the hell is winRAR?
.rar is a file, the same as a .zip file. And winRAR is the same as winZIP. It opens the files and you can extract them with it. create new .rar files and bla bla bla.