the oil gets mixed with the gas. you need to get 2 cycle oil, and mix it with the gas before you put it in the gas tank. there is no need to put oil into the crank case of the engine. 2 strokes get their bearing lubrication fro the 2 cycle oil that's mixed in the gas. whetever you do, DO NOT run straight gas in this engine....it will lock up because there will not be any lubrication.
to break in the engine, you will need to run a fuel / oil ratio of 16:1. it will smoke a lot out of the exhaust and it will probably drip oil out of the exhaust too, but that's normal. you are putting a lot of oil through the engine to seat the rings. when you buy a bottle of 2 cycle oil, MOST bottles have a mixing ratio measurement thing on the side of the bottle, so you know how many ounces of oil to mix with one gallon of gas to get the desired ratio. you can pretty much buy 2 cycle oil anywhere these days. there are several brands to choose from and synthetic 2 cycle oil is the way to go in my opinion. 16:1 is 16 parts gas to 1 part oil..so there is a lot of oil in that one part gas. i think they say to run the gas/oil ratio at 16:1 for like 300 miles but i'm not positive. they also say to vary the engine's rpms while riding it (don't hold it at a certain rpm for too long..you want to be on and off the gas while you ride. they also say not to go full throttle for awhile, and keep your speed down to like 10-15 mph so the engine doesn't over rev. after break in, you can lower the gas /oil ratio to 32:1 or so which is 32 parts gas to 1 part oil. (more gas per oil mix).
if you do not understand this, you should read up on 2 cycle oil / gas ratios and stuff like that. if you don't run enough oil in the gas, you will burn up a bearing or cause the rings to wear really fast in the engine. if you run too much oil in the gas, the motor will run terrible...sometimes it will not run at all if there is too much oil.
a lot of guys play with the gas/oil ratios to see how it affects performace but 16:1 is a good starting point in my opinion for break in. after break in, 32:1 should be fine.
if someone reads this, and finds that i am wrong on any of this, please correct me.