The easy things first. The handle is UP when the CB is UP. There should be a locking pawl to keep it in the UP position. You then pull the handle BACK and DOWN to LOWER the CB. When it is FLAT the CB is DOWN. (Effectively the handle is at 90° to the CB).
The neoprene washer goes on the outside of the trunk.
If you feel you have too much play, you could cut two disks from some plastic sheet and glue them on each face of the CB (or make that semi -circles so they don't go into the water when the CB is DOWN. That might help space things.
Some people have had a shop drill and tap the CB pin so they could screw a bolt into it from the reverse side. From the factory the CB is suspended only at one side of the trunk, with the system I'm talking about you get in effect of a continuous axle. That's the state my boat was in when I took over.

The picture shows the setup where I assume your boat only has a blank wall. If you were to decide to make that modification, leave the drilling of the pin to a metal working shop but make sure you add a bit of circular reinforcement to the side of the CB trunk before drilling it. Can't remember whether this was left as raw fiberglass or whether there's a metal bushing as well. Almost looks like it from the picture.