No flow improver is different. I user premade stuff. I used to make some of it, but I can't be bothered anymore, but you can save some money.
Anyway flow improver basically changes the properties of the paint, helping it to flow better, and painting medium is meant to do what it says. Think of flow improver as something meant to change the consistency of the paint, without altering the paint itself.
Water helps at the end. I use water at the end when I want to basically 'remove' wash from the model. I don't put water in the wash or paint.
Medium is like a dilution method. Medium acrylics are diluting the pigment count by increasing the volume of the base medium, but of course the medium doesn't have pigment in it, so it simply dilutes the product, without altering it's composition with something foreign like water does.
Don't over think it. Just try some experimenting. When I'm applying the stuff all I'm saying is don't just brush it on like a paint, or you end up dragging too much of it.
I apply the varnish to help the Flow Improver do its job. I do so with an airbrush 90% of the time because of my fear of getting brush strokes on a model. You can use a rattle can varnish, lightly. There's nothing wrong with that.
I just did some eldar wraiths with pure washes over airbrushed varnish and it looks great, but with vehicles it's much harder with all the large, flat panels. This is why it helps to hit the panels after with some zenithal highlights.
I'll try to remember a picture to show you. One thing I won't do though it put water in the washes especially. It just screws up the colour and you get this slight separation of the base pigment and the water.
The water almost acts like a 'repellent' to the pigment and the 'medium' it's mixed in. That's why I think Medium is just that... it's the base medium (often acrylic) that your pigments are attached to. When you add water it changes the composition of it, and I notice separation.
I've gone way off topic here, but that's it in a nutshell. I don't use Windex anymore. I used to use it to 'rinse' or clean the airbrush but it can be used as a wash base, so can floor polish. But that's another topic.
Hope that helps.
(Like I said I'll take some pics, you'll see it's far from perfect, but I allow for mistakes to cover with the airbrush).