I dont think they are basic questions at all!
But I'd say the answer would be yes to all your questions
I'd have them line the entire width and most of the length of the nappy - especially if you are looking at using them for newborns as their poo tends to get squashed about more than solid poo so you want to have as much coverage as possible.
I do think though that you might want to avoid it sticking out on the sides to avoid it actually exploding out!
And yes those blankets are fine - though make sure they are not too thick as they might end up too liquidproof and not let any fluid through at all.
And the good thing about fleece is that it doesnt fray so you really just have to cut to size, dont even have to bother putting a hem on it.
Oh and any smaller bits can be used for wipes too