Yes, you can embed a section inside another. You can do this by either using Application Explorer drag and drop or by configuring the properties on the section. The section you wish to embed can be located in the same class, a parent class or some other class.
(1) Flow Diagram - a flow diagram or flow rule, used to describe a process, is both a visual representation (i.e. documentation) and a fully functional component.
(2) The Appropriate "Applies To" class - this depends. In placing a rule, reuse, maintainability and other condiderations come into play. If a section is used to display specific data elements, loctel the rule in the data class. If a section contains data elements relevant to more than one case type, apply it to the application abstract class. If a section contains data elements unique to a given case type, create the section in the case type class. etc. Checkout the "Designing the UI For Reuse and Maintainability" lesson of SAE 2 for coverage of this.