Ok, two-part tackle here!
1, being a cock ring affectionado my advice is to use your common sense, if it´s painful, stop.
I would reccomend getting a bunch if different size rubber rings and try them out, personally i don't go for the "in front off balls" approach myself as i find it can harm my erection more than it helps (your mileage may vary).
For a behind the balls ring, id go for girth of cock + 10mm (that's a bit less than 1/2 inch for you non metric people) as a start and then work down in increments of 5mm. I get my stuff in stainless steel made custom, if you pack a large member, only experiment with strechy rings!
So, signs of warning? well, pain is bad, a really blue glans is worse. It should be tight enough to give you more "pump" but not tight enough to hurt, even after prolonged use.
Try it yourself while masturbating to get a feel for the effects, if you feel pain around the root of the cock after having the ring on for a time, then you're likely fitted to tight.
also cosk rings are a bit of a habit thing, remember that foremost they should be an aid and a boost, especially if you're young and healthy!
2. As for your suddenly turning flaccid, are you wearing properly sized condoms? I recognize myself greatly in your description back from the times when i still tried cramming myself into "standard" sized rubbers.
No absolute truths or quick solutions, sorry!