Center the cleats over the ball of your foot, it's where you'll get the most power. You can screw them into either set of holes (if you've got a four hole nut in the shoe), but center the cleats over the ball of your foot. Also, as for position, notice your natural foot position on the pedals and alight the cleat in such a way that your foot will be close to that position (toe-in, toe-straight, or toe-out). There should be enought float (aka play) built into the system to allow your foot to rotate enough to keep you knee from getting sore.