The c3000 can be quite the complicated system. I have had one for 2 years now and I am still learning things about it.
If you have a KVM card in the chassis then you would connect your keyboard, monitor, and mouse to the KVM card. If you don't have the integrated KVM, HP provides a dongle with each of the servers that gives you a VGA, Serial, and two USB ports for your keyboard and mouse. The dongle connects to the front of each of the blades.
You can do the install of the operating system using the iLO connection, but the console connection is much quicker. You still need to have iLO connected in order to do updates to the onboard administrator as well as monitor the servers. You set the IP address of the Onboard Administrator by using the built in screen.
To install your operating system, put the Smart Start CD into the drive and connect the DVD drive to the server using the Onboard Administrator. When you boot up the server, Smart Start will give you a few prompts and then ask you to put the server operating system install disc into the drive. Smart Start will do the install for you including drivers and management software.
You have to run Smart Start on every server, just like you would have to install an operating system on each server.