How do brakes work?

The brakes on my 36 chev failed and I am now trying to figure out why and how to stop it from happening again!
I have a 10# residual value on the rear drums and a 2# residual value on the front disc. I have a proportioning value, which I have no idea of how it should be set. I have been driving the unit for the last year (1000 miles) and they did pass a road inspection test.
The brakes were working fine, and then I put in a new rack & pinion steering. I took the unit out for a test up the block and the brake pedal stuck going through the floor, so I was driving with the brakes on. Got back and fixed the hole so the petal moved freely. Next time I went to test the steering, the brakes were very low and stupid me thought they would come up. Started the car, went forward slowly, hit the brakes and they were not there. Now I have some front end damage. Lesson – We need brakes that work!

I have plugged the master cylinder and the pressed on the petal and it is rock hard. There are no leaks.

I have an old 50’s rear end on the car and the adjusters on them do not self adjust. Could they adjust themselves in as there is nothing touching the adjusting gear? I have taken the drums off and the shoes look like they are where they should be (very little gap 1/16").

I unplugged the rear and connected it, with front plugged and all was hard. I plugged the rear port on the master and connected the front and there was no petal, so it must be the front. But why does the back ones not stop the car if the front is gone? I thought that was the idea of the 2 chambers? I am thinking it must be air in the line. But what would cause the air and how do I stop it? The brakes were working!
I noticed that when I took the plug out for the back brakes, there was little brake fluid lost. When I plugged the rear brake port and opened the front brake port, the brake fluid came out until the hole was plugged. It that normal?

Here's a link to a good primer on the system. http://auto.howstuffworks.com/auto-p...ter-brake1.htm
If your problem is in the master cylinder (pitted bore, leaky seals) then you may not have much braking of the secondary loop - the pressure developed can bleed by and cross over in the MC reservoir and you don't get any pressure until the first spool bottoms against the second. The idea of the two loops is to stop in an emergency, not to give you full pedal and perfect brakes if you spring a leak at one wheel. Also, if you do not have enough pedal travel to allow for the MC spool compression then you'll lose all braking. If you lose the fronts you have lost most of your braking power, from my experience.