Checked Clip to Artboard. Things going a little smoother now!
Still perplexed about the swatch think though?
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To draw Artboard inside artboard:
if you want to draw an Artboard Inside Artboard using artboard tool follow the follwing steps:
select artboard tool to go in artboard tool mode-> mouse over the area on which you want to draw the artboard -> press shift and start drawing artboard and once you have started drawing artboard release shift and continue drawing artboard.
Thank you for chipping in Sanjaysingh84.
I think my problem arose because I had unchecked clip to artboard. I could not work out why save for web kept defaulting to the document boundaries. I kept activating the artboard I wanted and it wouldn't work. I thought that it had happened because I saved a .psd file and something strange was going on. I haven't done that much as I usually start from a new document in Illy.
Any idea about the color selecting thing? I've noticed before that some documents don't seem to have any swatches available in that flyout box and I don't know how to fill it with colors.