I think I get it now. Memorize spell is what we can use in fight. The slot is limited (only 2 for now), Know spell is spell we have learn. I already get sleep spell, probably from monster drop. It's kinda weird druid have different magic tab, but also have to memorize spell. Is druid/priest available magic is fixed or they will be added as you level up?
Micromanaging combat seems very important in this game. I kinda like how fragile our characters is and really have to work out just to survive wilderness. The idea of everyone carrying missile weapon is strange to me, but seems effective. Also just realize after reading your comment that Jaheira also has magic, and many are usefull ones. Will dig it later. Thanks

Priests (Clerics and Druids) automatically learn all the spells available to them when they reach the required level to cast them.

If you notice, there are tabs on the spell list that correspond to spell levels. Once you reach level 3, you will be able to use 2nd level spells, which (in theory) are more powerful than 1st level spells, but use separate slots. At higher levels, you will, of course, get higher level spells. Priests automatically get spells of new levels, while Mages have to find the spells in scrolls.

One other thing of note:
Baldur's Gate 2 has a tutorial built in. If you want, you could try playing that tutorial with a pre-made character (choose Tutorial instead of New Game, then choose to Import one of the default characters). This tutorial teaches you the basics of gameplay (including things like spell casting and finding traps) and then takes you through a short dungeon. After that dungeon, the game sends you to Baldur's Gate 2 proper, but you can stop there if you would rather play 1 first.

I think I need to play that tutorial. Many are still foreign to me. Lock picking and trap for some. Thanks

Apparently dnd is more complicated than I thought. But I like games that based on rules like this. It allow us to think and use rules creatively to our need.

Couple of more suggestions:

1. Move slowly and cautiously in a new areas. Many times you will encounter big groups of enemies. If you run into a big group it is often a good idea to retreat first, regroup and then try to eliminate them. Often only few of them will pursue you so in that way you can split the enemies and the fight becomes more manageable.

2. Micromanagement can be super powerful. For example, if you see a powerful melee enemy go after one of your character, then start micromanaging this character (basically, keep moving him/her away bit by bit so that he cannot be hit by the creature but the creatures still keep chasing him) while others keep shooting. This is very important early on when fighting big tough guys like ogres or bears.

3. Check weapon specializations of your characters. They have better chances to hit enemy if they use a weapon in which they specialize.

Additional tips:

4. Keep in mind that initially mages are near useless. They will get quite handy later on when they can memorize more spells and get higher level spells. From 1st level spells sleep and magic missile are really good.

5. You will soon start fighting against mages and clercis. In that case it is main objective to stop them from casting spells. When a mage is in the process of casting a spell and he is hit, his spell is disrupted and he will not be able to cast it. Moreover, the spell is wasted so he has one less spell he can cast.

6. Don't feel to attached to your current party members. You actually have no obligations to travel with your foster father's friends. I mentioned earlier a few strong characters which you might want to consider. But there are many others.

7. Don't rush to fast with the main quest. Exploring is rewarded and also is a lot of fun. Moreover, if you push the main quest to fast into 4th and 5th chapter your party will be too weak for the awaiting challenge. I typically start exploring the world heavily once I am in chapter 3. But be careful, off the main paths there are some really tough opponents which obliterate low-level parties.

Be advised that Xzar gets two spell slots at first level because he is a specialist wizard. Specialists get an extra spell slot at every level, but they can't learn spells of certain school(s) (called opposed schools). A generalist can learn spells from any school, but he doesn't get that bonus slot. So if you make your PC a non-specialized wizard, you won't start with as many slots as Xzar does.

Dtgreene covered the priest aspect pretty well. Anyone casting divine magic (all divine magic is on the same tab, though two different classes may have different spell lists) will have spell slots, but they'll get access to their entire possible repertoire of spells for a level as soon as they can cast any spells of that spell level. This includes clerics, druids, paladins, and rangers. Divine casters don't have to find scrolls.

Wizards and bards (arcane casters) will need to find spell scrolls to add new spells to their spell book, and the scroll is used up in trying to teach one character the spell (regardless of the success of the teaching attempt; save before trying to learn a new spell).

Sorcerers (not available in basic BG1) are also arcane casters, but they don't learn spells or use spell slots the way other casters do. They have a selection of spells, chosen at level up, and they get an allotment of casts per level. They have a very limited spell selection, and they can't increase it by learning from scrolls, but they don't have to choose what spell slots contain which spells. A low level sorcerer might only know sleep, magic missile, and mage armor, but he might be able to cast 5 first level spells. He can pick on the fly what he wants to cast, up to 5 level one spells total. If he wants to throw 5 magic missiles, he can do it. If he wants to MM, then Sleep, then MA, then Sleep, he can. A wizard would have to choose how many of each spell he wants available; if the wizard memorizes two magic missiles and suddenly finds he needs a 3rd magic missile, he's out of luck.

The suggestion to run through BG2's tutorial is a solid one. You should also definitely read through the manual.

Sound advice. Thank you
Magic canceling sounds important. I also want to roleplay a bit so if my character don't like a party member they will separate ways. Right now he realizes he is too weak so he takes any help he can. In time he will consider what's best for him and act accordingly. Hopefully it doesn't lead to his doom :)

Somehow I missed your post when I was reading on my phone. Weird.
Thanks for explaining about magic. Magic management, now that's new. Usually games I played only depend on MP which is kinda shallow. Just hoard a bunch of mana potion and you're good to go. This trick won't do with BG afterall.

Damn, this game is deep. It's been a long time since last time I got overwhelm by a game. I really feel clueless and the joy of exploring the unknown is coming back to me. Thanks :)