You can program the ATMega on your Arduino board with the Arduino IDE if the chip has a bootloader on it. When you are done and happy with your project, you can just pop the ATMega out off the board and use it as a standalone on another board (link: http://itp.nyu.edu/physcomp/Tutorials/ArduinoBreadboard). It will then run its program once powered on. After power-on there's a short delay from the bootloader that still sits on the chip along with your code.
I've read that site before. Just to clarify, the breadboarded circuit is an arduino equivalent right? I was just going to buy the arduino instead of breadboarding it like they did. They say you can bootload using the arduino as follows:
Place your Atmega chip into the Arduino board with the divot of the chip facing outward. Set the jumper to an external power supply and connect a 12V power brick (your board needs to be externally powered when using the AVR ISP mkII but is not needed with the AVRtinyISP) . Then, attach the 6-pin female plug of your AVR programmer to the 6 male header ICSP pins with the plastic nub of the ribbon cable head facing inward.
Does this mean the chip already on the arduino can pop off? And which jumpers are they talking about?