The `oil` is usually fed into the exhaust pipe,by a pump or compressed air,operated electrically by a switch/button on the c-c or throttle,either an add-on,or redundant one.
There are other self contained smoke generators,just `google` Smokewinder`.
The display area will be decided by the Display Director using CAA Display criteria with regards to distances /heights/length of crowd line,and type of aircraft and their `type` of display,be it flypasts,aerobatics,formations ,and also crew`s experience.
For competion aerobatics ,you need to go to google again ,for `British Aerobatic Association`.....