Yes, it should be placed before putting on the heatsink, as it will make it a lot easier...
You'll probably want to place the thermal sensor on the bottom of the heatsink, as close to the core as possible. If you were to put it right inbetween the core and heatsink, temps might be affected negatively. (You don't HAVE to use the thermal probe at all, but it does help a lot when you're idle and don't need the extra cooling and noise).