Want to start shooting in RAW and use Photoshop elements

Sounds like you're on a Mac, so the process is a little simpler. On a PC you have to use a raw converter on import. On a Mac the OS handles the conversion on the fly. Choosing DNG on your Pentax will be a file format camera menu setting, you'll need to look up your manual to find out how to do it.
On the Mac, you can import directly into iPhoto. In the menu bar you select iPhoto > Preferences > General and choose 'Edit Photo', which gives you a drop down box. Navigate to PSE in the Applications Folder and select it (probably says choose editor or something). Then go to the advanced preferences tab and you can choose to send files to the external editor as Raw (otherwise, I presume) it'll send JPEG). Note, this is for iPhoto '09.
iPhoto automatically imports into it's file structure any photos you open with it. If you're uncomfortable with that, you can download your images to a different folder first and then important them into iPhoto, just drag and drop them into the iPhoto icon in your dock. They'll reside both in their own folder and in iPhoto after that.
Hope that helps.

The software that came with your K-7 (digital camera utility 4) can be used to convert the raw pef file into a jpeg which any version of elements will open. I only have elements 4, so mine can't open raw files itself.
In the utility program, select the one you want and click "file", then save as. jpeg will be an option.
Yes, copy the files to a folder before importing them into iPhoto. Then you can work on them with whatever program you want to use.
I haven't used dng, but it's selectable somewhere on the in-camera menu.

Oh, it starts to get complicated here. RAW files give you much more flexibility, but you pay for that with more opportunities to mess up. Here's a workflow I might suggest: Shoot in RAW. Import the images directly from the card to your computer's hard drive, and give the file a name you understand. You can then view the files in elements IF your camera was made during the time your edition of elements was current (you may need to go to Adobe for an update). DNG ("digital negative") is an adobe supported file format that does not depend on the brand of camera, and supposedly is more universally read than other brand-model specific RAW files. You can use I-photo to catalogue your images, or you can use the file browser with elements to find them. When you work on the images in elements use save-as to save your modified images as jpegs or tiffs or psd's, depending on the use you wish to put them. Think of RAW or DNG as the "negative" and the other formats as the "print" or final image.

Thanks everyone. If I understand right...probably not...do I edit in RAW and then when I want to make a print etc. save it as jpegs (or the other options)? What if I have an image I want to edited and give to someone to edit. Can it be saved in RAW and then put on a disk for example for them to edit?

I would always save the original RAW file unedited and save any changes as a jpeg or whatever. That way, if you ever want to revisit the image and do things differently, you still have the original to work with. Most online labs and printers don't work with RAW files (at least I have yet to come across one that does) so you'll need to save as a .jpeg or .tiff or whatever they require. You can save RAW files to a disk, but whoever you're sending it to will have to have the correct software to open it. RAW formats are specific to the different manufacturers. I can read Nikon RAW files, but not Pentax or Canon because I don't have the software for that.

What you do is bring the RAW image into a RAW convertor. I don't know if Elements will do this, but I think so. When you've finished making any global changes in the RAW image, you then open it in Elements to finish the process. The RAW file remains on the disc in an unchanged fashion as a "negative" you can go back to. When you finish your enhancements, generally you would save the image as a .psd or a .tiff with the layers intact as a master file for that particular picture. When I want to output the image, I duplicate it, flatten it, sharpen it appropriately for the output and sent it to the printer or to the web or email or whatever. You can then save these files separately for future use. Don't use .jpeg to save an image you're going to work on later: every time you work on it and close it, it gets further compressed and loses data (a "lossy format"). .tiff and .psd do not compress and lose data when you close them.

Any newer version of Elements i.e. 6, 7, or 8 come with Adobe Camera Raw and can be updated when new cameras become available. Each camera manufacturer uses its own proprietary raw software. So when new cameras are devolped after a version of Photoshop or Elements is made available to the public it will need to have the raw converter updated so that the software will recognize the new raw format. Elements will allow you to import your raw files and view them in the organizer without doing any processing on them until you need to output them for web, email or printing. Photoshop Lightroom is a better option because all of the editing that is done in lightroom is non destructive, meaning that the raw image file in never changed. Instructions for your edits are saved and applied at the output stage. This is a great advantage because the origninal is always available with no loss of data. You can go back to the raw image and make hundreds of changes and there will never be any loss of image quality. Lightroom also allows you to print directly from the raw file without converting to a tiff or Jpeg or whatever. A Dng file is file type created by Adobe to try to encourage a more universal raw file format. They say there might not be software available in the future to support some older raw formats.