If I chose to accept Bitcoin as a payment for my product, and the price of the bitcoin goes up or down, then technically I am not getting as much for my product in the long run correct? Because the exchange is based on the dollar as one of the currencies. So If my product cost's 100.00 and that is a certain percentage of a bitcoin then if the bitcoin say its worth 7100.00 that would be .014 bitcoins. But if the bitcoin decreased in price say to 5100.00 then that same product would cost .019 bitcoins. Correct? How dos the fluctuation in price affect the value of my product in dollars?
It depends how you measure value.
If the price of Bitcoin in USD goes down, then it might be because of a change in the value of USD rather than a change in the value of Bitcoin, so in that case fixing a Bitcoin price for your product may reduce fluctuation.
Realistically, the price of Bitcoin fluctuates more than the value of USD. Also, it usually makes more sense to aim for a particular USD amount for a product rather than a particular Bitcoin amount.
To resolve this, you can setup software to automatically adjust your prices so that the Bitcoin prices for your product are linked to the amount of USD you want. There are existing tools that do this, and they aren't unique to Bitcoin as they are used for fiat currency price conversion too.
When using such a tool, you're still exposed to changes in the value of Bitcoin from the time of a sale until the time you trade your Bitcoin for USD, but again you can setup automated software to manage that; it could be used to sell the Bitcoin for USD as soon as possible after each sale.
Your basic understanding is correct.
Many merchants simply accept that the price of Bitcoin to fiat fluctuates and that they were paid the correct amount of BTC at the time of the transation, however, to circumvent the fluctuations many merchants also opt to have their BTC (or a portion of it) transferred directly to fiat currency upon receipt using merchant payment services like bitpos.me (for Australia). There are many such services available in many countries.
You will always have the 0.001 BTC, whether the price fluctuates or not. By accepting bitcoin, you are 'buying into' the BTC ecosystem, mission statement, network, etc, and therefore (most people in that same space) believe that the price of bitcoin will drastically increase in the future, due to scarcity and deflationary monetary policy.
Therefore, such as the pizza which was sold for 10,000 Bitcoins, in the future you will have a certain number of bitcoins, which may be worth WAY more than you paid.
So in closing, you can use it as a currency, to accept payment, and most people in this situation speculate that the price will go up, and they either use it as a savings account or purchase other material with the bitcoin as well.