I'm confused about the function of the All In One SEO. As I do each post, should I be filling out the "Post Tags" section or the "Excerpt" section as well as filling out the All In One Seo section?
Only if you want to. Generally you set up the plug in and let it do the work. Those options are just that for specific pages. I don't generally use them.
Personally, I use the Excerpt, Tags, and all of the All In One input areas for each post. Pages of course stay the same. Fill it out once and leave it, unless you change the content...same with the overall site settings, descriptions, and keywords. I think you should fill it out for each post.
You are not going to go wrong using all the options available to you. Those fields are there for a reason, because they help in different ways. Not saying it's a must..it's your site. You put forth the effort that you see fit. As long as you don't just stuff repetitive keywords all over the place ( if you are going to do that, you would be better off leaving the fields blank), some creative descriptions, excerpts and key phrases will definitely help in the serp's.
On my friends blog, we generally use 50-50 The ones which we feel are exclusive we fill in the tags and the regular content posts goes just like the dashboard posts