What is the relationship between Users & Permissions in Joomla vs Users and Permissions in K2. If I created Users in Joomla, should I do nothing with the controls in K2? Will there be conflicts? Is there anything specific I can read with detail on how this works?

Joomla acl is quite a bit more granular than k2 user groups and permissions.
When a user is added to joomla thru the K2_user module you can select the group they need to be in
Two groups exist...a joomla group and a k2 group
the k2 group permissions are used to control who can create and edit posts and to what k2 categories they are allowed to do it to