Sorry that it's taken me so long to reply to this. RL has been a bit busy lately.
It seems that you're unclear on what baking is. Or you were, in your first post.
All textures in SL are essentially flat image files. You can also use flat image files for textures in LW. These image files are always applied in SL using UV Maps, where each vertex on the image has coordinates on the U (horizontal) and V (vertical) axis on that flat image. Image files can be applied in LW (and nearly all other 3D programs) in the same way.
So, what you are doing when you bake a texture is telling LW to make a new flat image file that records the lighting on the model according to a particular UV map. LW essentially paints the image for you, as Chosen explained.
What you will wind up with is a flat image that you can take into PS and manipulate, if you want. You can also upload it to SL, and the lighting that you had in LW will be applied to the Avatar, assuming that you used the UV map that was supplied with the AV model.
Whether this will look good or not really depends on the lighting in SL at any particular moment. If it matches, or is close to, the lighting in the LW scene, it'll make your model look wonderful. But if it is different, it will make the shadows from LW look like patches of dirt, on the Avatar.
Naturally, most of the time the lighting in SL won't match the lighting in LW unless the LW lighting was very subtle. Direct lighting will make the clothes look much worse, not better.
For this reason, I would recommend using global illumination only, and using it very subtly, when you bake lighting onto a model.
As Chosen said, I used to be an expert in LW8, and I did write part of the manual. But wires got crossed, and I wasn't hired to work on the manual for LW9, which meant that I didn't get a free upgrade, and as it turned out I never upgraded at all. I switched to modo.
So I'm afraid that I haven't used LW in years, and I know nothing of how LW9 does things like burning textures.
Unless things have changed a lot, and they may have, a Shadow Map in LW is something that the lights make, not one of the attributes you can bake. What you want to bake is Illumination. That will bake the lighting on the model. Uncheck everything else before you bake.
The other thing you should do, before you bake, is to open Modeler, merge all the vertices (tap m) and than tap the tab key, to show all the polygons as SubPatches. If you don't do that, you'll have a bunch of Faces, and your model will look faceted.
Also, as Chosen said, you probably want to fix the modeling, which you can do by just moving the vertices around. That won't hurt the UV Map. You can even subdivide if you want, but you probably don't want to do that, since it will just give you more vertices to move, and since you will have already made them all into SubPatches, you won't gain anything by subdividing. Just don't spin the quads or anything, or you'll wreck your UV Map.
You should also be aware that, since very few people use LightWave here, your guide will be of limited use. If you really want to make a guide that will help people the most, then you might want to go back to Blender. You can bake textures in Blender as well, and more people will see it.
In fact, Blender is a very powerful program. You can bake textures, paint directly on the model, make sculpt maps that smooth and lovely in SL, and do all kinds of things.
You just have to get over the non-standard interface in order to use it. Which isn't easy, but is possible, and the price is right, since Blender is free.
So; that's my recommendation.

Enjoy your baking, and feel free to post if you have any other questions. I'll try to keep an eye on this thread.
And in a few more months, things should be settled enough in RL, (after more than a year,) that perhaps I'll be able to contribute to these forums more regularly again!