As far as I can see, Magento is great for what I am trying to do.
Now, I’m trying to add the option for prospects to select their size (and sometimes color) of the bathing suit they need.
Also, I’m trying to keep inventory of my smalls, mediums, and large. For example, on one product I have 0 Small, 2 Medium, and 5 Large. Can magento record and keep this information for me? As well as tell a client that I’m sold out on small when I am out of small?
The screen you’re showing is where you set up the attributes, not where you create the configurable products. On the screen you’re on you need to create attributes for color and size. Then use the screencasts to see how to build the actual configurable product: http://www.magentocommerce.com/media/screencasts/configurable-products/view