connecting macbook pro to a tv

Hello, I hope someone far cleverer than me can help with two questions.
First question. I am connecting my macbook pro to my TV. It's a fairly new top of the range TV with all the bits and bobs.
At the moment I am using a mini dvi to vga adapter which I connect to a vga lead which goes straight into the tv.
For audio I stick one of those blue and white things into the TV and it runs into my headphones.
This all works fine.
But...
The screen of my computer changes drastically when connected to the TV. The icons become bigger and more stretched. Everything is sized differently. Icons layer on top of one another to find room, and items at the top (view, history, edit etc) go missing because there isn't enough room up there.
So I go to system preferences and hit 'displays'.
Here's where I get confused.
Two boxes are opened for me.
One is called "VGA Display". The other is called "color LCD".
They both offer me a range of 'resolutions'. VGA display offers me loads from 640 x 480, 85.0 hz all the way up to 1920 x 1080, 60 hz. color Lcd offers me less but still a large number.
If I change the resolution in the color LCD box to the lowest resolution, my computer screen crops at the sides and any windows I have open are huge. If I change it to the highest resolution I still get the cropping on the computer but any windows open are a little smaller. But Safari window is three times bigger than the screen size! this even though my wallpaper seems unaffected. If i change the setting to 800 x 500 it swaps me to the vga box and asks me if I want to revert. This doesn't happen at any other resolution. I have no idea what this means.
Changing the resolution in the VGA Display box has a number of outcomes.
Basically what box should I be using? The vga box or the color lcd box? What is the difference? As you can see I'm pretty confused. None of them keeps my screen as it is when it's not connected tot he computer.
I must point out here that I have played DVDs and they seem fine, but certainly when I'm just looking at the TV as a computer screen it's a lot different. Maybe it's not possible to have the computer screen the same when it's connected up, but I would love it if someone could enlighten me on this LCD or VGA question.
The second question is this. Is there an altogether better way of connecting the computer to the TV? I've heard of some sort of HDMI cable that will go into my mac. Is that correct?
Sorry about the rambling message, but I hope someone can help.

There are two displays listed there because you are now running two displays.

The color LCD is your MBP LCD screen. Set it to the native resolution of your MBP, e.g. 1440 x 900.

The VGA Display is your TV, since you have it connected via VGA. For this one, you will need to dig out the owner's manual for your TV. Most of the better brands will have a section listing the resolutions and refresh rate that it will accept. Your MBP should be able to output the highest resolution your TV is capable of receiving.

edit: and yes, each screen will be set to it's own individual resolution.

Thanks so much, that's really helpful.
I've tried every single resolution and none matches perfectly with what I see on screen, but I'm finding ways round it.
Do you have any opinion as to whether there's a better way to hook up my mac to the TV?
Thanks again for the reply. Makes much more sense now.