ap does indeed mean son of, and "verch" means daughter of.
In terms of where you put them in a modern family tree I don't think that there is a right or a wrong place.
When they stopped being used, there are instances of where brothers adopted different surnames.
Today there is a resurgence in their usage so if there is anyone using that construction it will be interesting to hear their take on it. In the meantime you mind find the link below useful, although it is going back to the 13th century!http://heraldry.sca.org/names/welsh13.html