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You want "touch", which will cast the spell on whatever you just hit.
"self" means that when you hit someone with your sword, whatever spell you selected will be cast on your character. This is generally used for helpful things.
"target" will cause a spell to shoot out and effect the first creature that it hits.
As for enchanting:
It's been my experience that weapons should get the strongest soul you have, they will burn their avaible charges suprisingly quickly, however this really depends on how you use your weapon.
Engaer is in the upper tower, on the same level of the tower as Neloth. Remember that the towers tend to have multiple levels that my require some effort to move between.
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