What do all of the numbers and letters mean?

What kind of lens is the basic kit lens with a D40?

Do you recomend upgrading from the kit lens when buying the camera?

Typically, the names of lenses designate:

Brand
Focal length
Maximum aperture or apertures if it's a zoom
Macro function (if applicable)

In addition, they might also point out desirable features, such as Vibration Reduction (VR) or a Silent Wave Focusing Motor (AF-S).

Each manufacturer has its own jargon so you'll need to go to their website and mug up on what's what.

And, yes, upgrade the kit lens on your D40. Assuming you want a standard zoom, get the Nikkor 18-70mm that Smeghead has (buy second-hand and it'll be cheaper). There's loads of them floating about and they represent the best relatively cheap kit lens for Nikon that there is.