Cyclone II - EP2C20F484C7 - Project Questions

Yes, you may be correct. Thats the way to go with Audio/Video processing and using DSP functions.

As for your 2nd question, DSP blocks are only available for later and specific FPGAs aka, Cyclone IV, V, Arria, Stratix. It may not be available for lower / older devices. These DSP blocks are hardware MAC cells that let you do various DSP operations easily using FPGAs.

Since they are not available for your device, you will have to design/code them manually or get an IP from 3rd party vendor thats compatible with the FPGA on your board.