Gosh, if I was there, I could point to the spot I was talking about and not have to suffer with words. The closing panel I was talking about is as Matt described. It is the part of the fender that is visible from the front side of the door. In the photo, you can see a little darker area where the gasket closes against. It attaches to the fender.

These were my inner fenders before I fixed them. For anyone that thinks that they won't be rusty, they probably are. They do form a shelf where junk collects (thus the uber rare fender liners sold as an option by Volvo). You can see the caulking that someone else put on there and how effective it wasn't.
When I attached my fenders I used 3M strip caulk
http://solutions.3m.com/wps/portal/3M/en_US/3MAutomotive/Aftermarket/Products/Product-Catalog/?PC_7_RJH9U5230GE3E02LECFTDQCEK3_nid=GSLRY5ZD4SgsXB20NJQ19WglSNZRWQSX0DblIt is black and doesn't harden...the factory stuff is more of a butyl tape that gets a little hard and the fenders need something harder as it also acts as the seam sealer where the fender contacts the nose piece. This is the product that I used on my 240 and it is the correct product.
http://www.amazon.com/United-States-R-011B-Butyl-Seal/dp/B000BQUPYEFitting the fenders is an art. It occasionally requires thumping things with a 2X4 and a BFH to get the fit right. Gaps are terrible, so don't sweat them that much. The nose cone goes on first and the hood and fenders. Mount the fenders and fit with just 2 screws (one front and one rear). If they fit well, then you can put the butyl strip on and mount the fender - but remember, once on that's it - they don't come off without ruining the strip. The test fit is needed as I've had to oval out holes to get the fit where I like it.
Does this make more sense?
Oh, and for undercoating, I did the following. POR-15 or epoxy primer on bare metal properly prepared, then a top coat of paint (automotive) then I use rocker gaurd as it is easier to clean than "undercoat (tar)". I was using 3M Ultra Schutz, but have not found that the finish that I get out of it is to my liking. I've switched to either UPol Gravex or ProForm Rocker Gaurd (this is the semi gloss stuff that I love).
Craig