If you have a standard kit, the motor goes in the tube at the bottom so that the end of the motor with a clay nozzle sticks out. Place an igniter in the motor and (if you are using Estes or Quest...
For every action, there is an equal but opposite reaction. It you blow up a balloon and don't tie the end, the air inside the balloon is pushing against all of the balloon equally. When the untied...
Rockets work on Newton's Third Law: For every action there is an equal and opposite reaction or - you could say momentum is conserved. Blow up a balloon with just plain old air, hold it's end closed....