Yes, you need to hold them in your wallet, although I've read that some exchanges will give you the bytes that should be yours. To be sure, put them in your own wallet.
Also, you need to talk to the transition bot in the wallet, and give them your wallet address
AND, if you don't do that, you won't get black bytes.

You need to prove that you own your BTC, so you can't use exchanges to hold your BTC.
To prove you own the BTC, you can send some small amount to the transition bot (following the instructions), or sign a message.
The content of the message signature should be your byteball address, but first you need to tell the bot your BTC address.
Anyways, talk with the bot for everything

Distributions happen once a month every full moon, the next one is posted on the first post of this thread (you should really read all of the first post)

I also made a small guide here:
https://byteballblog.wordpress.com/how-to-get-free-byteballs
And I hope it can answer the rest of your questions.

And remember that BTC addresses are tricky, if you send any BTC, your coins are put in "change addresses", so be sure to have all your BTC linked (you can link more than one BTC address!) before the next distribution starts

You need to hold GBYTES or link the bitcoin addresses you own with the transition bot, then wait for the airdrop time.. The distribution is made through airdrops, so you can't claim Byteballs at any time.

The transition bot should explain everything.

I don't know when the next airdrop will be made.