1. Watch the video above
2. The readings will be around 1.000 - 1.1000, a normal ale would be maybe (1.045 OG) and (1.010 FG)
3. Make sure you correct for the temperature using an online hydrometer temperature correction calculator.
You may want to use an efficiency of 50% for steeping grains, whatever would give you about 16 to 17 points per pound or grain. I got 1.053 when trying that. I think the 2 oz would be plenty, depending on the AA.