That board is junk. Looks to me that it can be replaced. check to make sure the hinges for the storm door are not attached to that board, they may or may not be. If it is then you will need to remove the door. If not just remove the pins that hold the 2 closers and replace the board.

Estimate where the window will go on the outside and remove all the siding from that area by lifting it off the roofing nail heads. Don't remove the nails. Once the siding is off, you can cut your hole through the wall, install your window, flash it, apply your tyvek and window tape, then surround the window with jchannel if it is not provided by the window. Then you can reinstall your siding on the nail heads you left without losing positioning.

If this is vinyl siding, remove the vinyl siding in the entire area where the window will go. Use a Malco sideswiper siding unlock tool. Unhook the siding from the nails rather than pulling the nails. Then cut the rough opening out. If there is foam under the siding, yes, the window would generally go on top of the foam. Once you have the window installed, then you will cut the siding to fit back against the window, assuming you have an integral j-channel on this new window.