ok...
1) the envelope handling is a bit "special", as it tries to do the same as fast tracker 2, and that had nutty behaviour in many cases. I'm not able to run mt properly at the moment to test in detail (hardware phrackedness in mouse, keyb, sound & video on my old system, no time to fix it), but iirc for the envelopes it's important to have the instrument number set or not for how it behaves. for example if you use the "3xx" command _with_ an instrument number, it will restart the envelope, without it will continue (you'll have to del the instrument number after entering the note for 3xx to make the envelope continue instead of restart). likewise, a note without instrument number next to it will restart the sample (of the last instrument used on that channel), but not the envelope.
envelopes go sustain-first and then loop. so if you place a sustain inside a loop, the envelope will progress until sustain, and when note-off is issued, it will ignore the sustain and loop it. if the loop is positioned before the sustain point, the sustain point will never be reached (unless you trigger the envelope at a position after the loop with an "Lxx" command, I guess).
the "rectangle" (please call it "note-cut" or "note-off") will do 2 things in regard to envelopes:
-1) it will break the "hold" of the sustain-point, making the envelope continue
-2) it will start fading the volume at some totally obscure rate specified with the "fadeout"-value in the instrument editor. if set to "cut" it will stop any playback at note-off, if set to zero, it will just make the envelope handle volume. everything in between fades out more or less slowly, useful for example for an envelope-loop that simulates somekind of echoe behind the sustain point, letting it raise/lower the volume periodically, while the "fadeout" makes it more and more silent over time.
[-3) if no volume envelope is turned on, the note-off thing will just turn volume to zero.]
2) as for "chipsample" creation (small loops) of samples, it's hard to get what you want without lots of practise. the sample size just determines for example how many high-frequencies ("richness" in sound) are preserved when playing a low pitch. the shorter the loop, the duller it will sound at the same frequency, in most cases. so length is not really an issue otherwise, let alone you manage to tune your chipsound correctly.
I'm not a big fan of chipsounds, too static sound imho, and have seldom used them with joy, but to get an idea, you could get some sample collection of synths and/or real instruments, find something that has an similliar timbre to what you want, and cut out from a part of that sample a loop of one "period" (i.e. the soundwave will repeat more or less, warping all the time, choose one part that is repeated at the position that sounds interesting for you, make sure you cut out from zero-crossing to zero-crossing, zoom in, highlight & hit crop). then do with many sounds, and look into how the waves sound & look like. that way you can intuitively learn what shapes sound like (mostly, heh heh...), and how to "draw" similliar loops.
generally slow/flat/round curves sound dull, and fast/steep changes in the curve will make it sound sharp, bright.
I'd advise you to use instrument samples from samplepacks or ripped from other modules first, to get the hang of tracking.
good luck, & make nice tunes