Several of you who left a review have asked me to explain, but only one of you sent an email address that I could respond to so I decided to post an explanation here instead.
OK...hopefully this will help you.
In the first part it is Rose's dead husband and son (James, who died in the Korean was in the 50s) talking about her.
Then it is where rose and jack where reunited in the movie (I think you got that) James and his father is watching the scene. After that everyone is gone except for James who continues to watch his mother, without her knowing about it.
Josephine is Jack and Rose's daughter who was conceived after they had sex in the back of the car. Because of unknown reasons Rose miscarried this child before she could be sure that she was pregnant.
And oh yeah the dialog in italics represent one of the conversations held between jack and rose during the nights, Elisabeth Rose is referring to Lizzie.
Hopefully I helped you and if there is still any confusion send me an email and I will explain further.