Ravi Vakil's Vakil has a good motivation explaination for the definition $\Delta^*(I/I^2)$ I thinkin his notes. See his AG notes here or for the newest version here (chapter 23). In particular, I guess thinking about this locally makes it a little clearer what's going on, in terms of derivations etc. Also, when $X$ is smooth, it is instructive to see that this really gives the cotangent bundle on $X$.
As for your question about ramification points: Let $f:X\to Y$ be a finite morphism of curves (I will assume that these are smooth in the following). It is useful to have in mind the exact sequence $$0\to f^*\Omega_{Y}\to \Omega_X \to \Omega_{X|Y}\to 0.$$(This is exact at the right if $X$ is smooth)in the smooth case, but not in general). Note that $\Omega_{X|Y}$ is a torsion sheaf since the two other sheaves are locally free of the same rank (that is, they are line bundles on $X$). At a point $q\in Y$ and $p\in X$ in the preimage of $q$, let $dx$ denote a generator for $\Omega_{Y,q}$ as a $O_{Y,q}$-module. Now, $(\Omega_{X|Y})_P=0$ if and only if $f^*dx$ is a generator of $\Omega_{X,p}$, which happens if and only if $f$ pulls back a local parameter to a local parameter, that is $p$ is unramified. Moreover, the exact sequence above shows that the ramification index is exactly the length of the sheaf $\Omega_{X|Y}$. Finally, note that this sequence gives the Riemann hurwitz formula, relating the canonical divisors of $X$ and $Y$ and the ramification divisor of $f$.
