I've heard of some other paradoxes involving sets (i.e., "the set of all sets that do not contain themselves") and I understand how paradoxes arise from them. But this one I do not understand.
Why is "the set of all sets" a paradox? It seems like it would be fine, to me. There is nothing paradoxical about a set containing itself.
Is it something that arises from the "rules of sets" that are involved in more rigorous set theory?
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An informal explanation is Russel's Paradox. The wiki page is informative, here's the relevant quote:
Let us call a set "abnormal" if it is a member of itself, and "normal" otherwise. For example, take the set of all squares. That set is not itself a square, and therefore is not a member of the set of all squares. So it is "normal". On the other hand, if we take the complementary set that contains all non-squares, that set is itself not a square and so should be one of its own members. It is "abnormal".
Now we consider the set of all normal sets, R. Attempting to determine whether R is normal or abnormal is impossible: If R were a normal set, it would be contained in the set of normal sets (itself), and therefore be abnormal; and if it were abnormal, it would not be contained in the set of normal sets (itself), and therefore be normal. This leads to the conclusion that R is both normal and abnormal: Russell's paradox.
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The "set of all sets" is not so much a paradox in itself as something that inevitably leads to a contradiction, namely the well-known (and referenced in the question) Russell's paradox.
Given any set and a predicate applying to sets, the set of all things satisfying the predicate should be a subset of the original set. If the "set of all sets" were to exist, because self-containment and non-self-containment are valid predicates, the set of all sets not containing themselves would have to exist as a set in order for our set theory to be consistent. But this "set of all sets" cannot exist in a consistent set theory because of the Russel paradox.
So the non-existence of the "set of all sets" is a consequence of the fact that presuming it's existence would lead to the contradiction described by Russel's paradox.
This is in fact the origin of Russel's paradox.
In his work "The Basic Laws of Arithmetic", Gottlob Frege had taken as a postulate the existence of this "set of all sets". In a letter to Frege, Bertrand Russell essentially blew away the basis of Frege's entire work by describing the paradox and proving that this postulate could not be a part of a consistent set theory.
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The existence of universal set is incompatible with the Zermelo–Fraenkel axioms of set theory. However, there are alternative set theories which admit a universal set. One such theory is Quine's New Foundations.
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"Why is "the set of all sets" a paradox? It seems like it would be fine, to me."
The lesson of this and other set theory paradoxes is that when you define a set in a proof, you are obliged to demonstrate that the set exists and is well-defined. To me, a paradox of Russell's Paradox is that he fell into this trap since he pretty much wore himself out trying to generate a rigorous foundation for Mathematics.
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Russel's paradox arises if you consider the set $U=\left\{x:x\not\in x\right\}$. Ask yourself if $U\in U$. If you suppose so, then by the definition of unrestricted set comprehension $U\not\in U$. You have a contradiction, so it must be the opposite of what you supposed, that is, $U\not\in U$. But this is the same as saying $U$ belongs to the complement of itself, that is, $U\in U$. You now have another contradiction, but this is far worse, since you have no hypotheses. The whole theory is logically inconsistent.
In set theory there are two ways for getting rid of the Russel's paradox: either you disallow the set of all sets and other similar sets (see for example the Zermelo-Fraenkel set theory), or you allow them, but you also restrict the way they are used (see for example the Morse-Kelley set theory).
In the first case, set comprehension says if you have a set $A$ you can have $\left\{x\in A:\phi\left(x\right)\right\}$ (notice: writing $\left\{x:\phi\left(x\right)\right\}$ is just wrong in this case, because you have to have an initial set). If you now define $U=\left\{x\in A:x\not\in x\right\}$ and you repeat the same passages as before, it only follows that $U\not\in A$. There's no contradiction and the theory is consistent.
In the second case, you consider classes, not just sets. Sets are classes that belong to some other class, while proper classes are classes that belong to no class. Set comprehension, in this case, says you can have $\left\{x:\phi\left(x\right)\right\}$, but all its members are sets by definition. If try to reproduce Russel's paradox, you get that $U\not\in U$. If you then suppose that $U$ is a set, then you have a contradiction, so $U$ must be a proper class. This is all you get. No contradictions. The theory is consistent.
Let $|S|$ be the cardinality of $S$. We know that $|S| < |2^S|$, which can be proven with generalized Cantor's diagonal argument.
Theorem
Proof