The regular Arduino has plenty of pins for most projects, but if you need a bit more, then the next step is the Atmega, with lots of pins and an SMD chip. For DIY the Atmega644 is a solution. A bit more power than the 328, but still available in DIL. It is the same chip as used in the ‘Sanguino’.
R3 and LED2 are the standard ‘test Led’ circuit. For compatability it should be connected to pin 19 (PD5=D13). Do this via a jumper, so the test LED can always be switched off in case you need to put something else on that pin.