You are correct in assuming that the Morph modifier is for the mouth movement. It's best to have whatever you're trying to morph all ready for animation and whatnot (no further changes after morph internally) before you attempt to morph the mouth, because then you would have to do the same with the morph targets, and that's no fun at all.
So, you have your object with the lips and whatever you have with your morph modifier applied and ready to go. Make it so that the mouth is resting normally, like our mouths are right now. Now the channels from 1 to 100 can hold a different state, a morph target if you will. The best way IMO to get these targets is to clone the whole object, and delete the morph modifier from the cloned object. You edit that object to have let's saayyyyy, the O shape when your lips make the O sound. Once that cloned object has an O shaped mouth, you can go back to the original object and select your first channel, rename it to whatever, and then it should say something like "pick morph target" or something along the lines of that. You select that button, and pick your cloned object, the one with the O shape. Congratulations, you have your first morph target. You can freely move the slider from 0 to 100 to see the effect. Very useful! You could also take it a step further, go into the global parameters tab, and change the upper and lower limit to -100 to 100, or -500 to 500 for very huge extremes. The negative numbers works well for instances like if you wanted a smile, the negative values would give you a frown. To make more morph targets, you would have to clone yet another object from the source, delete the clone's morph object, yada yada. Basically you're going to have x amount of clones for x amount of channels you're going to have. There's more to talk about, but that's the gist of it. Best of luck and happy modeling!
