There is no 'right' or 'wrong' way.
First, always thin your paints down. The only exception maybe if your going to drybrush. The amount of water you use strongly depends on what you are painting and what you're trying to achieve.
It is always better to use several thin layers then one thick. Of course for some parts the paint should not be thinned down to much (like for eyes...) whereas for other parts the paint can be thinned down pretty much (such as basecoats, ...). Most of the times people call the consistency 'like milk'.
Now, how to thin is up to you. Some painters even thin their paints directly within their pots. You can use a dropper (like empty vallejo bottle or even bigger from your hobby store) or the take the water directly with a brush. Using a dropper is sometimes very handy if you are using droppers for your colors also, therefor you can get 'exact' ratio of water and paint. But the brush also works well. Personally I use both, I have a big plastic dropper with distilled water but I do not use it all the times. Sometimes you want to use distilled water because in some regions the water from the tap can be very 'hard'. This can increase the tendency of your colors to separate. Also there are several other mediums you can use for thinning down your paints, like glaze mediums, thinners, alcohol, etc... but I think should first try to work with paints thinned with water.
best,
G.