1: In theory, there is no limit to the width of the tree you can perform an air-layer on. The inside of a tree/branch is always just deadwood. The living parts are on the outside of the tree, so it doesn't matter how much deadwood there is in there. You must bare in mind however that the branch must be able to form enough roots to support itself. The bigger the tree, the more roots it must form before you can cut it off. This may mean that you have to wait 2 of even 3 years before you can separate. On a branch this isn't much of a problem, but on a trunk it means that you have to interrupt the flow to it's original roots so long that they actually start to decay. It also means that you have to make the wound big enough so that it doesn't heal too soon.
2. Where you want the roots to form. Bare in mind that if you go for the tourniquet method, the roots will form above the wire. If you go for the ring method, the roots won't form on the bare wood, but above. So make the first cut where you want the roots to develop and make the second cut a few centimetres lower (about the same as the diameter). This gap is only there to insure that the wound won't heal before enough roots have formed.
One tip: I have had great results with the following technique. put a little rooting hormone on the wound then pack it tightly with sphagnum moss. Now instead of wrapping foil around it, cut a hole in a plastic pot and place it around the wound. Close it again with some duck-tape and fill it up tightly with akadama. Then water it thoroughly with a very light fertiliser mix (i added some superthrive also). Then close the pot with wrapper foil. This enables you to let it root much longer and the roots become accustomed to soil right from the start. Don't forget to water regularly.
good luck!