NPM is a really nice tool, allowing you to install node.js modules locally and globally.
Local module installation
If you want to use a module for your project, you have to install it locally. That's why npm creates a subdirectory called node_modules inside your project directory. If you use the same module for two different projects, npm will download the module and install it twice. That's perfectly normal, it helps you manage different versions of the same dependency.
The best way to manage dependencies and install modules for a specific project is to fill the package.json with your dependencies and install them using
npm install
inside your project directory.
To access your modules in your code, use the require() function. For example, with expressjs :
var express = require('express');
var app = express();
...
Global module installation
npm allows you to install modules globally as well. But remember that installing a module globally only provides more commands in your terminal, as with expressjs and express(1).
In order to install expressjs globally, run this in your terminal
npm install -g express
If you want to use a globally installed module in a specific project, you also have to install it locally (in your project directory, without -g).
I hope this answers clearly your question.