yup, you have to wind it into a ball, just like you might have done as a kid with string. You can do a regular ball with the yarn feeding from the outside, or a center pull ball with the yarn feeding from the inside.
To do a center pull ball, leave about an 8" tail and start wrapping the yarn around your finger. When it's big enough to seem solid when you pull it off your finger, pull it off and start winding the yarn in other directions. The tail you left will allow you to pull the yarn from the center of the ball.
The advantage of a center pull ball is that it doesn't have to roll around to feed the yarn. So, you can tuck it beside you on the couch or put it in a pouch and still pull yarn out easily. The disadvantage is, when you're 2/3 of the way through it, most of the center is gone and the outside collapses which can cause it to get smooshed and tangled. When mine gets to that point, I usually rewind it into a new, smaller center pull ball. The advantage of a non-center-pull ball is that you never have that problem. The disadvantage is that it won't feed yarn unless it's loose enough to move around. Some people put it in a basket on the floor, large and smooth enough to let the ball roll around as you pull yarn off. But, you might not want to carry that basket with you to knit on the bus or at the park...
eta: forgot to mention, the best way to manage the huge loop of yarn while you're winding it into a ball is to buy a yarn swift
. If you're too cheap to buy one (I am
) I, personally, drape the loop around my neck while I'm working. I'll whip off four or five loops of the yarn at a time, then wind that up.