Can i connect my guitar to the computer so that the sound comes out in the speakers connected to the pc?

It should work out okay. If the guitar is too loud, turn it down, doesn't the guitar have a volume control? If you want effects and stuff I think you'd be better off using a direct box, then play through line in, or insert an effects box in-between. There's some pretty neat amp modeling effects available. Most computer sound cards don't offer very good audio performance. And the mic input will be rather noisy compared to an actual guitar amp or pro sound card. Plus, the sound output from computer speakers is only a few hundred milliwatts for small ones, and maybe a watt or two for big ones. Hardly enough to really play a guitar through well. And forget about using any accoustic feedback.

The technical name for the "big to small" jack is the 1/4" to the 1/8" audio plug adapter. You will need that if you want to connect your guitar to the computer. Also, if your computer has inputs like this: http://www.systemaxdev.com/productmedia/HTMLImages/CTEN/ContentModules/mini-audio-port.jpg (the blue one included), then you can just plug it in there and anything that goes into the blue will come out the speakers (no software required). You will need good quality speakers for it to really sound like an amplifier though. PC speakers are often low-quality, especially if they don't have their own power supply. If you're going to use the microphone port then you will need software. The one you're thinking of, guitar fx-box sounds good. There's also Audacity. As for the overload thing? I've never really heard about something like that. I'd ask a real person if that's true, not some online person.