Well, the bad news is that the Sony is not a studio-grade machine. It's a low-speed stereo consumer deck, which is called '4 track' because you can flip the reels over like a cassette (using 2 channels per side).
There is a quad version of it known as the 366-4, but I don't think it allows for proper multitrack recording either. AFAIK you can record all 4 tracks at once, or record two separate stereo pairs. On a proper multitrack recorder you would be able to enable or disable all 4 tracks individually.
It would make a useful training machine to get to grips with using a reel-to-reel but it won't do you proud if you try and make a stereo mixdown. It certainly is not what you want for tracking a song.
It should be usable as a tape echo, though.
To answer your more in-depth question, there are basically three ways to set up a project studio that uses tape:
1. Track the song digitally and mix (or bounce) to tape
2. Track the song on tape, digitize it and mix/edit digitally
3. Track the song on tape, mix on tape (all analogue)
The first two, the hybrid analogue/digital approaches, are useful if you already have an existing digital setup, since that allows you to add tape to your existing process. The third one is the traditional way things used to be done, but it takes the most effort and expense since you'll be building an all-analogue studio.
Leaving aside instruments and microphones, your basic building blocks of a studio are:
1. Multitrack recorder - you record the song on this piece by piece, a multitrack will allow you to go back and overdub new tracks on the existing recording.
2. Mixing desk - The multitrack will have 4, 8, 16 or more outputs, depending on how many tracks it can record. To get a useable recording at the end of it you'll need a mixer to mix these inputs down to a stereo recording.
3. Stereo recorder. Playing back the multitrack through the mixer is all very well, but you'll need a way to record the mixdown so you can distribute it. You could just use a computer to begin with, but a nice stereo master recorder is good to have, especially if you're trying to do a pure analogue recording as far as possible.
That would get you going. You wouldn't have any effects, but the mixer will have a way to loop an effects device through it, and you could always record your instruments through a delay pedal or such.
It's worth noting that there are combined devices such as most of the cassette portastudios or the TASCAM 388, which combine both the multitrack and the mixer into a single package.
Hope that helps...
