Dropouts and latency are related. Latency is the delay between a sound going into your audio interface, through Cubase and then back out till you hear it. Cubase needs a bit of time to calculate, as does your audio interface for the analog to digital and back to analog conversion.
The latency Cubase has (usually called buffer size) can be changed in the ASIO driver, usually from 32-bit up to 2048-bit or more (the higher the longer the latency). How much latency this results in in milliseconds depends on the samplerate (which you should leave at 44.1 KHz) and also a lot on the quality of the driver.
In general, you want your latency as low as possible without getting dropouts, which sound like pops, clicks or scratches. This happens when the buffer is not big enough for Cubase to complete all calculations. You'll notice that this depends on processor load. A simple project with just a few tracks and no plugins will probably run fine on the lowest buffer size, but as a project expands you'll find Cubase needs a higher buffer.
A high latency can be a problem when recording, because the performer hears a delay between his performance and what's being recorded, which can make timing difficult. Some audio interfaces have zero latency monitoring which could be a solution in this case, and if you are using an analog mixer then you can create your own zero latency monitor mix for recording. When mixing it doesn't matter how high your latency is, as timing isn't critical here. Note that Cubase compensates for this latency, so whatever you're recording at high latency will line up fine with the rest of the project, it's just that the playback is delayed.
Advice on recording your friend is difficult without hearing the song ;). Usually on a vocal you use a compressor to create a more even volume throughout the track. You can do the same on the accoustic guitar. Use an FX track with a reverb plugin on it to create a sense of space in your track, send both the vocal track and the guitar track to it.
Use EQ to sculpt the sound of each track. Boosts are usually broadband and subtle, cuts can be very aggressive and targeted at specific frequencies. For example, you can do a low cut with minimum gain to get rid of the low frequencies of the guitar track, which will get rid of some rumbling noises from the frets or mic. You may also notice that some notes appear louder in the recording, because of your room. Use EQ to reduce that specific frequency a bit to compensate.
Anyway, there's lots to learn/experiment with on this topic, I suggest you just go ahead and try things. If you get stuck, make a post in the made with Steinberg subforum and attach your recording so people can hear it and give feedback/tips.