1) With an analog controller, which usually has a large differential of 3 degrees Celsius, I would let it hang in the air in the refrigerator with the wire simply running through the door of the refrigerator.
2) Since fermentation produces heat, the fermenter will be warmer than the ambient air. Therefore, you need to set the controller a few degrees below your desired fermentation temperature. I set mine about 4-6 degrees lower, depending on how vigorous I know the yeast is. However, you always want to measure the temperature of the fermenter. Those cheap stick-on fermometers are surprisingly accurate. This way, you can adjust the controller if the fermenter is warmer or cooler than you want it to be.
After a few brews, you'll get a pretty good idea of how much lower you need to set the controller to get it to your desired fermentation temperature.
3) In general, you won't get as much blow-off after you start fermenting cooler. The only exceptions are for particularly crazy yeast, i..e hefeweizen, Belgian, etc. In my opinion, fermentation temperature control is one of the most important things you can do to improve the quality of your beer. After controlling temperatures, my beers stopped tasting "off" and started tasting a lot more like commercial craft beer.