Help understanding how avrdude works with ArduinoISP and why its not working for me
The target board was not reset.

The "Arduino as ISP" sketch uses pin 10 to reset the target, not the SS pin. So even on Mega, wire reset of target to pin 10, not to pin 53.



  Is this an error communicating with the ISP (Arduino) or is it an issue with the ISP talking to the target (ATMega8B on USBAVR)?


the first error "not in sync" is a problem with communication with the programmer. it was caused by wrong baud rate. the "invalid signature" is a response from the programmer about target. if the signature could be read avrdude would print the target MCU type. all zeros signature is when the target doesn't answer. so check the wiring. 


  What does "stk500" mean? Is that the programming protocol, the ISP protocol, or something all together different?


yes it is a ISP programming protocol. the "Arduino as ISP" implements only this protocol


  Is this all documented somewhere?


this is AVR MCU world, not Arduino. you can google avrdude reference, stk500 reference etc