I'm in the process of making my first frag movie and think I could give you some tips/pointers to help you get started.

Requirements: you are right about what's needed. Quake Live to create the demos, wolfcam to play and convert the demos into editable material and video editing software (like SV) to add video effects, transitions, music, etc.

Wolfcam: installing wolfcam should be pretty easy, just follow the instructions. It is a bit tricky setting up your own ads/billboards (some of my designs worked, others didn't). For any help with wolfcam you can try to get assistance here or in the #wolfcamql IRC channel.
A very useful feature of wolfcam is /fragforward X, which will fast forward through a demo until X seconds before you make a frag.
If you'd prefer a user interface instead of navigating through a demo via the commandline/binds, you can try to get wolf whisperer working.

When I find a frag worth using, I "re-record" the part I want to use, with a prefixed name like /record fragmovie_epic_midair, so I can easily find it again later.

To convert a QL demo clip to editable material, you can either choose to output to an AVI directly, or to a sequence of images and a audio file. You can output to AVI via /video AVI (best to make binds to start/stop this command*). The advantage of the former is that you just have one AVI file (containing video+audio) to work with, the disadvantage is that the file will be huge (like ~10 GB per min). I prefer to convert the demo to still images + the sound file, like so: /video JPEG WAV. This will take less space on my hard drive and the video editing software (SonyVegas) can import this all at once.
* bind start video to o-key "/bind o video AVI"
bind stop video to p-key "/bind p stopvideo"

If you are new with Sony Vegas, look up some tutorials on youtube, or just experiment a bit with it yourself. It has a ton of features and it takes a little while getting used to all of it.

To add your own music, you can just import the music into the active project in Sony Vegas and drag it onto a timeline, this is pretty intuitive.

Render: Once you are done with the project in Sony Vegas (another protip: save regularly), you can File>Render it into any format you want. If I remember correct, there should be an option for the best Youtube format, if you want to upload it to Youtube.

If we had a Wolfcam subforum *cough cough* I could link you a few existing threads where people asked more or less the same thing and lots of comprehensive answers were posted.

But to answer your question yes, with wolfcam, demos and a video editing program like sony vegas you have basically everything you need. Wolfcam is where you do all of the initial scene cutting and camera work (and you'd also be surprised just how much of the visuals are set with wolfcam directly), and everything else is done afterwards in the video software. I have no experience with sony vegas myself so I'm not sure if you'll need additional software for fancy 2D things (Photoshop) or encoding the final video (Handbrake).

First read all the tutorial sections here and then when you start your project go to #wolfcamql @ quakenet and feel free to annoy KittenIgnition whenever you get stuck.