"Setting a classpath" simply means setting the CLASSPATH environment variable.
Windows uses the PATH environment variable to find programs to execute. The PATH consists of a list of directories where Windows will look for *.exe files (executable programs). Normally, you'll want to add the bin directory of your JDK installation directory to the PATH, so that Windows can find the JDK tools when you're working in a command prompt window. See Updating the PATH Environment Variable in the JDK installation instructions.
The CLASSPATH is used by Java to find Java *.class files. Normally you'll want to leave the CLASSPATH environment variable not set.