Placement of the catalog feature is similar to that used in the hole tool.
After you add the catalog feature, there will be a sketch associated with the catalog feature. Right click and select "edit sketch". Then you can project/add/sketch reference geometry and use standard constraints to constrain the associated sketch/catalog feature.
For the dropdown, you can navigate to and select multiple catalog features and add them to the dropdown list. Then you can add multiple catalog features simultaneously or use the dropdown and select one from the list. I think, the idea was that if you have several that you will be adding over and over, it would be more convenient to just select it from a list than to keep navigating to different file folders. Someone can correct me if i'm wrong here, i havn't used these features much, nor in a long time.