Your files can go anyplace you want.
It's your site, make any structure you want.
I would not however add them to Publisher's sub-folder as they may get
removed on later publishes.
You can put them on the main level same as your home page, or create a new
folder for them.
The typical standard is to have a folder called 'images' on the main level,
i.e. www.mysite.com/images/
I think it's causing you grief because you're making it out to be hard and
it's really quite simple.
Create whatever structure you want, you only need to know what that
structure is so you know the urls of the files so you can link to them, i.e.
www.mysite.com/images/woohoohereismypic.jpg
I'd assume you've already turned to my site for resources but if not I'd
suggest these two that mention structure -
http://www.davidbartosik.com/arc/mirrorsite.htm
http://www.davidbartosik.com/pub2002/pub2002_27.htm

as for image quality you'd want 96 dpi, if your program doesn't specify that
then just browse to the image in windows explorer and look at the image
properties, (if available (Win XP has it) ) and you can find the resolution
of the image file there.

and images FROM the publisher file in it (that also sits in the public_html
folder alongside the index page.)  When I upload the additional images for
the linked pics from the thumbnails, do these need to go IN the folder with
the other images from my PUB file alongside those images, or in a separate
folder?

be the most effective way to maximize my optimization for the pics?