As with any new craft, there are things to be learned. You are on your way! As a Newbie (we love you!) you will find things that don't look right. It is normal!
That hoop is for your 5" by 7" and the actual area is more, but the computer/machine needs some leeway for doing its job. You can turn patterns to accommodate your hoop. Your machine is 5" by 7" hoop compatible, but no larger. There will be other options for you later, but for now, lets do some fun stuff!
I highly recommend that you do the tutorial here in this section. It gives you a project that is fun and quick. It gives you information for your start up.
Patterns that are over 5 by 7 will not sew out directly in your hoop. You must 'split' a design that is larger - but save that for when you are more knowledgeable. It does require a software that you probably did not get with your start up kit.
Ask questions, read, read and then practice - return to reading. . . .
You are going to love what your new hobby can do including but not limited to great gifts for people of all ages. I personally love giving pillowcases for everyone. I also did a jillion totes for my friends. Anything that does not eat is subject to being embroidered.
Pat, The Avid Embroiderer
If you are interested in selling your projects, you can determine your costs and profits quickly with my Spreadsheet.