DDR2 and 3

what is the difference between the two and does the video card need to be the same as the rest of the system

Hi. DDR3 is just newer/faster than DDR2.

This has no relation to which video card you run and does not matter at all. Video card and system DDR2/DDR3 can be effectively thought of as separate, because it is. No bearing on each other.

i was also wondering if a regular video card is better than an on board one

Sorry ...Hi gesilvia1 & welcome to Windows 7 Forums
DDR3 has several advantages over DDR2 memory, such as lower operating temperatures, lower latencies, and reduced power consumption, DDR3 memory is more costly and not compatible with DDR2 sockets on a Motherboard. Memory on a GPU is not interfaced with the Motherboard Slotted Memory.

As to your second question - there are many types of Graphics Card, so it depends upon what you would be using the Computer for.

Following on from Veedaz, so long as the PCI-e video card is more powerful than your onboard graphics you will notice it straight away. a good start for everyday use would be the HD4770 as it is cheap and performs rather well for the cost. btw, most video cards come with DDR3 & DDR5 ram now a days and as the others say it has no effect on your installed MB Ram