Thats pretty much correct, the baking youre referring to is common to generate a normal map (and other maps, AO, etc). The general idea is you have a low poly and a high poly that essentially match/lineup except they have different poly counts, and therefore the higher poly one is more detailed. You "bake" these high poly details into a texture (like a normal map) and then apply the normal map to the low poly in game for lighting calcs, etc.
Youre missing steps in the sense that it can be a little more involved, depends on the tools/process used, normal map output depends on the target engine/software format, conventions, etc. and as I understand it, its not exactly hard to generate bad maps containing errors if the input models are not what/where they need to be.
a program called x-normal is often used for the "bake" process.
As for poly counts, again its sort of target dependent, what are they for, I believe the characters in doom 3 if I remember were somewhere between 1500-3000, thats probably on
the lower end these days, but again its depends on the target use and the effects that will be applied to it, it really could be anything. Two triangles for a wall in the world with a lot
of effects on it might do the job. For the high poly bake source, ive seen extremely high counts, 100s of thousands or more depending. But again it depends on whats needed.