The catch bottle is just that, it is inline from the 2 liter bottles to catch any overflow you might have from the bottles. I used a small peanut butter jar, a plastic one for this when I did mine. I fed the CO2 right into the intake of my AC filters and could get levels up to 50ppm.
As for the bottles exploding, always check to make sure they are not clogged. I have seen pictures of the aftermath from DIY CO2 exploding and it was a nasty mess. That and the smell is not the most pleasant if you can imagine a straight alcohol and yeast mixture all over the room.
Check valves are also recommended by some but I could never get them to work for me.
I will have the picture when I have time and feel up to drawing one if I can't find the ones I have already. Sometimes I hate computers, can never remember where I saved something.
And don't worry about CO2 displacing oxygen, it simply doesn't happen. Fish gasp at the surface because levels get too high, not because of the lack of oxygen. Levels should stay between 30 and 50ppm. Also, make sure your KH is at least 3dKH to prevent major pH swings and stays there. CO2 will lower you pH and a low or non existant KH can cause serious trama to your fish from pH swings.
Download the following calculator to help you keep track of your CO2 levels as well as guidelines for dosing fertilizers. http://www.csd.net/~cgadd/aqua/art_plant_aquacalc.htm