Beginner 404 Error

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I have been following a tut in the book professional codeigniter by Thomas Myer from wrox based on version 1.7

Leaving the world of .NET I have been working with raw php for the past year, now I thought it was time to learn a framework. Codeigniter was the framework of choice.

I was expecting some problems by using a book from version 1.7 and trying to apply it to version 3 but I did not expect the problem right from the start.

$autoload['libraries'] = array('database', 'session', 'email', 'validation');
$autoload['helper'] = array('url','form','text','date','security');
$autoload['model'] = array('MProducts', 'MPats');

Error on validations so I removed it from the autoload file.

$route['default_controller'] = 'welcome';

$config['base_url'] = 'http://savingonlinenow.com/test/';
I'm not sure why /test/?

$config['index_page'] = ' ';

.htaccess
RewriteEngine on
RewriteBase /
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule ^(.*)$ index.php?/$1 [L]

So the real question is how does all of this work? what page can not be found? what is loaded first? how do I get to some default index page and where is that? does the controller tell the view to show?