How do you:
1) create a page and select “Blog Template” and also choose which category for the Blog’s you want.
2) Then create a blog post and choose the category for that page….resulting in a page that shows all the blog posts for that category?
Sounds like you are looking for the functionality of WordPress 3.0 Menus Subpanel. In Dashboard go to ‘Appearance’ then ‘Menus’ and you can create a page that will show the posts from a specified category.
WordPress by default creates category archive that lists all of the category’s posts, but if you want to do that in a page then take a look at List category posts plugin
which allows you to list posts from a category into a post/page using the [catlist] shortcode. This shortcode accepts a category name or id, the order in which you want the posts to display, and the number of posts to display. You can use [catlist] as many times as needed with different arguments.