What happened to USB 1 & 2?
They're probably on the backplane of the motherboard.
Where do we hook up the two sets of those colorful wires?
They go on those sets of 10 pins you mentioned. I know, it doesn't make sense. Those sets of 10 pins you are referring to are actually 2 seperate 5 pin sets (each USB port uses 5 pins). Each 5 pin set has: a +5 volt pin, 2 data transfer pins (+ and -), and 2 ground (-5 volt) pins. The thing is, you really only need to use 1 of the ground pins, which is why your wire sets from your case only have 4 wires each.
Look in your motherboard manual to determine which pins are which, and then either look at the wires themselves if they are labeled, or check the manual that came with your case to find out what wires are what.
With everything hooked up correctly, you will have an empty pin that isn't used.
Hope that helps