Do I need to get permission from the authors to cite their work?
No, but you need to include sufficient acknowledgement of the work.
What if the work is copyright free, i.e. the author allows us to use his/her work?
It means you do not infringe copyright, but you still commit plagiarism if you do not cite the work properly.
What if I buy the paper or I pay the author to write?
This is called cheating!
Is it ok to copy words or ideas so long as I use proper quotation marks and give credit/citation?
Yes, it is. However, if the copying makes up the majority of your work, then it is still plagiarism (Besides, how is your professor going to mark your report if it only contains copied words?)
Do I need to cite EVERYTHING?
No, of course not. You don't have to cite common knowledge and your own experiences or observations (see: The complete guide to referencing and avoiding plagiarism, 2007, p. 20).
What are the consequences of plagiarism?
You may face failing the class, suspension or even expulsion.
But there can be plagiarism without publication, as in the case of student plagiarism. The fraud is directed in the first instance at the teacher.... But its principal victims are the plagiarist's student competitors, who are analogous to authors who compete with a plagiarist. (Posner, 2007, pp. 206-207)