Yeah, the tube goes on the inside of the can. If it's not there, the air/oil mist will mostly just go right out the outlet. With the hose, you are forcing it to travel through the entire catch-can, through all the SS mesh. That will aide greatly at keeping the oil from traveling straight through the catch-can.
The SS pad won't get sucked back through the outlet...after you push it in there, you'll see why. (It took me about a half hour to stuff one pad in there through the big drain hole in the bottom. It's never coming back out, especially through a smaller hole.)