Sidearm plumbing questions

They are usually teed into the hot water outlet side of the water heater, then a thermostatic mixing valve installed above it to make sure the hot water from the water heater never gets too hot at the fixtures. Then install a tee on the bottom and reinstall a drain petcock for future use.

It appears the red arrow is pointing to the drain, yes.

Can't say on the Caleffi mixers. I have a Honeywell on my hot water heater and it's been flawless.

I have my hot T'd into my blow off port. But my blow off port is in the side of my tank, about a few inches from the top. Was easier to do for me. Might be easier for you too, since it's pretty well on the same side of the tank as the drain.

You also want to get your sidearm as low as you can, and as close to directly in-line with the ports as you can. The less the domestic flow has to go sideways, the better it will work.