The radiator can go either inside or outside of the case, depending on your situation.
Personally I would prefer it inside the case to give a cleaner overall look, but often times the motherboard or other things will get in the way and prove this to be difficult. With the 120 though, you should be able to fit it inside your case with relative ease.
As for a reservoir, you can either use one or go with a T-line, which is essentially just a "T" in the tubing (preferably at the highest point) with a plug in the top where you can add liquid and bubbles can escape the loop. Some of the bay reservoirs looks pretty cool if your into that, or the swiftech microres is great if you want to fit it somewhere inside of your case.
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