Well if you got $45 to spend.. I highly recommend "TWITCH" from videocopilot.net .. that thing's pretty darn amazing..
http://www.videocopilot.net/products/twitch/
otherwise a lot can be done w/ just afterfx right out of the box. (Or use a combination of both).
For basic fades, just keyframe the opacity (hit T to bring up opacity, hit the stopwatch, move forward however long you want to tkae to fade, then change the opacity % and it'll animate).
Flashes, you can keyframe a 'curves' effect, or just overlay a colored solid (usually white, but w/e you like) and set the transfer mode to add and keyframe the opacity so it flashes briefly.
There's a few 'transition' effects built in and lots of tutorials on how to make your own.
The limiting factor here is your imagination.
This sounds like it'll be a fun/learning experience for you and you should take as much away from it as you can.
The most important thing about this is that you're happy with the end result.
Let us know if you need any more help with it.
-Jeremy