With the wand, and attached air stone, it goes into the wort. I'm sure some is released above the wort, but enough gets infused to do the job. Next gadget for me is a DO meter, so that I can take a reading after infusion.
I typically run 1-1.5LpM for 60-90 seconds. Bigger beers (above 10% ABV target) get a bit longer (up to 120 seconds). I typically see short lag phase times. Of course, pitching a yeast slurry from a starter also helps.