Is it safe to continue and will I then be given the option to partition and allocate appropriately for windows and mac?
No, it's not safe to continue unless you want to lose your entire Windows partition and all the data that's in it. What exactly are you trying to do? The selection you chose is for restoring your hard drive back to one partition - all OS X and removing the Boot Camp partition.
Go ahead and follow through with that. It will restore the entire Macintosh HD back to one partition. After that, reboot and go back to running Boot Camp. Make sure you read all the Boot Camp instructions and be aware that you may have to download drivers from Apple.
It would really help if you told us what Mac you have (year and model) and also which version of OS X you're running.
OK since you want to remove an existing Windows/Boot Camp partition you do indeed want to remove that partition go ahead and click restore. Before you do that though, make sure that you have removed any data from the Windows/Boot Camp partition.
Restoring the hard drive to one partition doesn't erase the Mac (OS X) partition.
As for your other question I am not sure where things went wrong. Normally you can "see" the Windows partition even if there is no data on it. The process actually takes a couple of steps so I suppose any one of them could have gone wrong.
BTW After restoring to one partition run disk utility and verify the disk.