A few very nooby questions.

Windows applications in VS.NET use the name app.config by default for the configuration file. This will not be automatically created when you create a Windows application. If you need a configuration file for your application, open your project in VS.NET, go to the 'Solution Explorer' and right click on the project name. Choose Add > Add new item from the menu and select 'Application Configuration file' from the list of choices. This will create an app.config file for you in the application root.
 
Note: When you compile your application, VS.NET will automatically create a file called .exe.config in your bin\debug folder. The contents of the app.config will be automatically copied to this new config file when you compile the application. When you deliver the application to the end user, you have to deliver the exe and this new config file called .exe.config and NOT the app.config. Users can modify the data in .exe.config file and application will read the data from the config file, when restarted.

If you want to declare class level variables, the best place would be right before the constructor, after the class name declaration. If you want method/block level variables, you can declare them inside methods/blocks.
About the second question, I don't know how you can autogenerate it inside that folder, perhaps you could just copy it to that folder each time.
-Mamta