How can I set the keyboard and language in Android, and how can I add more languages to the device?
Go to 'settings'-> 'Language & keyboard' -> 'Select language' and select one. If there are only a few available then that was the (awkward) choice of your operator or phone manufacturer.
To solve that problem, an app like CustomLocale solves it only a little. It doesn't work all that well or complete. Rooting and installing a custom ROM with sufficient languages is the only way to fully solve it.
If only the virtual keyboard is bothering you, you can install others, such as the MultiLing keyboard, from the Market. Be careful for malicious apps though. You're granting them access to anything you type in, and since the keyboard is pretty much always loaded, it might render your phone slow or instable if the keyboard app is buggy.
The instructions above might differ per flavour of Android (provided by the manufacturer on top of the stock Android) but will be similar.