When installing a peep sight, how do I know where exactly it should be set on my string?

Your peep height is not a "one-size-fits-all" for any one person or bow. It'll change depending on string angle and axle to axle length on each bow. So the best way to determine your proper peep position is to come to full draw with your eyes closed and get into all of your anchor points as if you were about to shoot. Then open your eyes and have a buddy slide your peep sight up or down your string so that it lines up properly with your sight. Then let your bow down, and do it again to make sure it's in the right spot.