Do Most People Use Red Book Prices?

Hello and welcome to the forum!

The RedBook is a very useful reference but since it is only a once a year edition, the values are not the best to use for current prices but will give you a good idea of trends. On lower end coins(<$50) the values are usually pretty close to retail prices but market values move much faster on high value coins. Pricing of grades above MS-63 isn't necessarily gouging as the prices in Mint State are usually not somewhat linear like circulated grades due to a little thing called conditional rarity. Look at the values of Morgan silver dollars to see what I mean- they are, as a series, probably the kings of conditional rarity due to various mass meltings over the years(Pittman Act of 1918, etc). 1884-S is a great example- you could buy EF coins all day long for $50 or less but if you want an MS-63, be prepared to spend $30,000 or more! Not rare in mid to low circulated grades, incredibly rare in Mint States- that is what I mean by conditional rarity.

BTW, most dealers use something called The Coin Dealers Newsletter aka "The Greysheet" for buying and selling http://www.greysheet.com/

Rarely

Red Book is literally just a guide book. Metalman nailed the best way to determine prices.

The Red Book is very popular. I prefer the Standard Catalog of World coins, but everyone is different and will have a different opinion.
Price guides are o.k. but the value of a coin is not carved in stone and the guides are just that, guides. They are good for a ball park figure.
I do not know if I would call it gouging, but yes, there are good dealers and there are bad dealers and some that will take advantage of you if they sense you do not know what you are talking about.
One of the best defenses is to learn everything you can about a coin that you are interested in BEFORE you go out and buy it.
Also, try and get to know your local coin dealer. Most of them are good and will try to help you, but remember first and foremost, they are sales people trying to make a living so take what they say with a grain of salt.
Learn to ask questions on the forum. You will not be bothering anyone. If someone has an answer to your question, they will post it. You will have to look hard to find a more helpful group of people then those on this forum.
Oh yeah, welcome to the forum and welcome to the hobby.
Jim.