I can't answer all of your questions, but will take a stab at some.
Questions
1) Is it best to book through Disney reservations? - Not really. Any
travel agent can get the discounts for you. Depending on where you decide to stay, you might be better off booking everything on your own using
AAA or Entertainment discounts.
2) Do you need to stay on site? If so which hotel? - Unlike WDW, it is not necessary to stay onsite at DL. There are actually hotels on Harbor Blvd that are closer the the main gate than the Disney hotels. The only exception would be the Grand Californian, which if your budget allows, would be a wonderful place to stay. But not very Disney themed, i.e. no Mickey soaps or Disney characters.
3) How many days do you need to see the parks without feeling rushed? We are looking to go in June/July with our two boys, ages 10 & 5. - Even with an AP, I don't like to take trips less than 3 days. And for a first timer in the summer, I'd say a minimum of 4 days. You will be able to see all of California Adventure in 1 day. But I like to allow extra time to wander around
Disneyland.
4) Which airport to fly into (from Newark) - John Wayne (also known as Orange County or Santa Ana) is the closest, but Long Beach, Ontario and Los Angeles (LAX) are all manageable (within 30-40 minutes of Disneyland). Just find out who has the cheapest flights and go there.
5) What are other go local attractions and distance? - This is where I'm not much help. I don't seem to make it very far away from DL when I visit. I do know there is another theme park called Knott's Berry Farm that is about 15 minutes from DL. They have more roller coasters and also a water park. Many people also take day trips to
LegoLand which is in Carlsbad, but I'm not sure how far away that is. And also Sea World in San Deigo.