I've used the folded towel (folded just in half) for Scout, and then for 3 subsequent batches of chicks and found no issues at all it with it insulating too much and keeping chicks from enjoying all of the heat from the pad - even when it was in the teens and twenties where they were being brooded outdoors. I didn't use a big fluffy towel - I used towels off the stack of "These are so thin you can see through them towels". Any excess towel covered the back all the way to the floor with no gap back there, and on the sides I lifted up the frame a bit and tucked in under the edges at the floor. I had the same situation with mine that you do - the frame was bigger than the pad. So the uncovered part became the "cool down front porch" and I loved to see them peeking out from there. It was still warmer there than all the way outside, but it was cooler than the back and center of the frame, and they really liked that choice and self regulating.
If there's a drawback to the heating pad method, it's the space it takes up in an indoor brooder box. Right now it might look like it fits well, but when you add chicks, a waterer, and a feeder floor space suddenly shrinks. That's why mine is always closed all the way to bottom at the back - it's tucked up as close to the back wall of the brooder as I can get it and they just use the front opening to get in and out. Outside in the brooder pen in the run, I set the frame on a bed of straw, then pack straw all the way around it and over the top. Doesn't take the little stinkers long to scratch the straw off, but I just put it back on when I went out to do chores. An exercise in futility most of the time, but it was the little game we played.
I so much prefer starting them from the beginning outside, regardless of temperature, but I do keep them in for the first 24 hours if they've had a stressful shipping experience. A little observation and then out they go!
From this point on, your best teachers are going to be your chicks. It'll be easier to see any fine tuning you might have to do when they are actually in there. I've never had problems with them learning to go under, but I usually put a couple under there at first and hold my hand in front until I think they've realized that the heat is right there, then move my hand and let them out. They were then the first to dash back under, and the other chicks just follow. Training done. I've also brought chicks home, put them in, and had them run for that dark, warm secure spot first thing, and didn't even have to put any under. Your chicks will tell you what you need to do. One of the biggest problems some folks seem to have was getting worried when the chicks didn't "stay" under it. That's perfectly natural behavior- they don't stay under Mama Hen 24/7 either.
If yours seems to be too low when you first get them, you can raise it by pulling up on the middle. Too high and you can smoosh it down. But they grow so fast you'll be raising it rather quickly. I just can't wait to see them!! Well done, Grasshopper!
