Well, you call them what you wish, as long as you know what you're talking about.
Typically, the heatsink is the metal (copper or aluminum usually) component that sits atop the CPU. A fan pulls heat off the heatsink and exhausts it out of the laptop.
The compound in my case is silver/gray. I use arctic silver 5http://www.arcticsilver.com/as5.htm
Yes, it goes on top of the cpu between it and the heatsink. It's purpose to assist in the transfer of heat from the cpu to the heatsink so that the fan can pull the heat off more efficiently. Mainly, it achieves this by filling the many tiny, tiny gaps between the heatsink and CPU--air pockets make for lousy heat transfer. Biggest mistake made when applying thermal compound is people put on too much,
I am not re-applying the compound every six months just for the sake of re-applying the compound. I am open the case and cleaning out the dust inside the heatsink fins. However, once you break the seal between the CPU and heatsink, the old compound needs to be cleaned and then you reapply the new.
I work in a lot of dirty places, and take my laptop everywhere, which means it tends to get dirty quickly. I open it up to clean it out every six months, because a dirty heatsink means too much heat and too much heat kills electronics.
Most people probably don't need to clean their laptops as often, but I will say I have repaired numerous laptops whose main issue was clogged heatsinks.