Yep... you are a bit sideways there.
Here is what you do. Open the App Store app and look in your purchases list for Lion or Mountain Lion (whichever you are on) and click to redownload. That will put the 4.7GB installer in your Applications folder. Stop right there and do not proceed with the install. Now run the Lion Diskmaker app you downloaded earlier and it will find the 4.7GB installer and make your USB key installer frm the 8GB USB key you have plugged in.
Okay... so now you have successfully made your installer key. Restart the computer with the USB key still in and hold down the option key as it starts. This will bring up a boot menu. Choose the USB key as the boot source.
Once the installer screen comes up run Disk Utility and select the drive name (like Seagate 500GB or whatever) and erase the disk as Mac OS Extended format. Quit Disk Utility and click install. Have a beer while you wait for it to finish.
As implied, this will wipe all data and apps on your drive and give you a clean start... so make sure you have backed up any data first.