>My question is where does the code go?

The code needs to go whereever you need to know the true value of a field. That
said, you may need to handle the binding of controls manually.

>Does the .fll file need to be in a certain directory (like my source code directory)?

It just needs to be in your path. I put required DLL's/FLL's in the root of my project.

>Does it need to be included in my project.

FLL's can be referenced in a project, but they cannot be bound into the EXE.

>Where do I use the function call to encrypt/decrypt these fields on my form?

Whereever you are navigating to a new record.