Alright. If you look at the above link as you read my explanation, you should be able to understand this.
The NGSQ report I have linked you to states "Descendants of William Pugh". This means that he is the oldest person listed in the document. It also means that the primary information contained in the document will be about his family, not about people who married into the family.
Alright, now on to the interesting stuff...
Generation 1: is the older generation. Generation 2: is the younger generation.
For the purposes of explaining the meaning of the diagram, lets begin with Generation 1. This will be easier if you highlight your relatives.
On the document I have sent you a link to, William Pugh and Lucy Pugh (nee Anderson) are the parents to the children listed in Generation 1. They are the grandparents to the children listed in Generation 2.
Parzade Pugh is listed as 2. i. in Generation 1. She is also listed as 2 in Generation 2. Her husband is listed in the paragraph with her...
Their children are listed under them. Ambrose Pugh is listed as 4. iii. in Generation 1. In Generation 2, he is listed as 4. He was married twice, but only had a child with Patience Thomas.
Basically, you just follow the numbers. They will lead you where you need to go. Any extra information provided is just the gravy on top of the mashed potatoes!
For example, Ambrose Pugh was also married to Matilda Davis. Although they had no children so she cannot be part of your lineage, it is still an interesting fact.
Patience Thomas' parents are listed, again an interesting fact, but not part of the lineage they are immediately discussing.
Honestly though, use your highlighter to show your ancestors. Use one color to show each person and their spouse through two generations. Switch your highlighter color for new people... You'll probably want a bunch of colors! Also highlight interesting facts such as the parents of those who married into the family (use one color for interesting material).
I hope this helps! If I can be of further assistance to you, please do not hesitate to let me know.