The $299 model will work for surfing the net and video stream as long as long as you have wifi access.
If you already have Amazon Prime, then yes, you can stream video from Amazon with no extra cost (again assuming you've already paid for Amazon Prime on your own, I'm unclear if the Kindle Fire comes with a Prime subscription or not). You could also subscribe to Netflix Instant if you find Amazon's video streaming selection to be thin (it's like 7.99 a month I think).
Yes you can also surf the net or read books as well. You get some useful Android apps from Amazon's app store too.
The $499 model is basically like having a phone data connection. But keep in mind 250MB isn't really enough for lots of video streaming.
You should go with the wifi $299 version.