Rewarding good behavior is much better than punishing bad behavior. Not because is nice...it just works better. That being said, the "Time Out" is going to be required. But there are some useful guidelines.
"What ages are for time out?"
Generally speaking - Between two and seven.
Conveniently, the ratio of one minute per age works out well. 2 minutes in time out for 2 year olds, 3 minutes for 3 year olds, 4 for 4, and so on.
"Should it be punishment or just time to think?"
Although it is a time for reflection and cooling down...it's still punishment. The kid is experiencing an unwanted consequence.
Control your emotions. Which is tough because the kid just did something to tick you off.
Try to get the child to go to time out voluntarily. However, you will likely have to pick them up and bring them. Remember to be measured, and not overly forceful.
Explain the reason for the time out and how long it will be.
Set a timer. I prefer for the child not to see the timer, as it distracts from self-reflection.
When the timer has expired, the child must offer an apology to complete the time out.
Do not converse with them during the time out, or it really isn't a time out.
Reward completion of the time out with love and praise.
"Should there be a chair or just sit on the floor?"
Yes, use a dedicated "Time Out" Chair. It helps with symbolism. And it doesn't have to be a chair. It can be a box, or steps, just as long as it is a dedicated time out space.
"Should the chair be facing the wall?"
No. We don't ever want to use humiliation, or make the child feel rejected. The child should be removed from activities, and although conversation should not take place, the avenues of communication should be kept open for safety reasons.
"What if my kid gets up and won't stay in time out?"
Lead them back, remembering to keep your cool even though they are pressing you.
Let them know that if they get up, the timer starts over again.
Kids want your approval. Sometimes this is enough to get them to stay.
Summary
Every kid is different with different coping skills and levels. You know your kid, so make sure that you don't give them more than they can handle. The time out should be used as a last resort. Use the consequence of time out to halt problem behavior before they do it. Yes, it is a threat. The first time will be the hardest. They have no idea that you're really going to do it, and don't even know what it really is until they personally experience it. Most of all, make sure that the child understands that the time out is to help them to become strong and disciplined.