I'm trying to better understand the Lightning Network. I was reading this article -- https://medium.com/coinmonks/lightning-network-how-does-it-work-ceeeda8ad21e . My question is, when two parties create a channel and one or both commit funds to that channel, is the committing of those funds an actual transaction on the Bitcoin network? That is, can the two parties involved only start using the channel when that transaction has been settled on the Bitcoin network?
Yes, a channel opening involves creating and signing 3 transactions, and broadcasting just one.
The transaction to be broadcast funds the channel, and spends to a multisig output. It is signed by whomever chooses to fund the channel. When this funding tx receives sufficient confirmation, the channel is considered open.
This multisig output is spent by two commitment transactions signed by both payment channel peers, but not broadcast. Each peer stores its own commitment transaction and only broadcasts it if it decides to unilaterally close the channel.