If you're only using Visual Studio and not Visual InterDev, then VSS won't
be very well integrated with your web server, so it won't matter if it's
separate from the VSS database server. If you are using Visual InterDev,
search groups.google.com for "InterDev VSS integration". There was lots of
discussion on this when it was a current configuration.

To setup a server as a VSS server you only need to expose a network share
folder and give the users of that folder the appropriate rights. The folder
to expose is the database folder, which is the one containing the
srcsafe.ini file. It in turn contains the data directory and the users
directory. You can create this by doing a full install on the machine or use
the ssadmin program to create a new database. The former is probably better,
because then you'll get all the appropriate tools necessary to maintain the
database, which should usually be run on the local machine and not over the
network. The network rights for the share are outlined here:
http://support.microsoft.com/default.aspx?scid=kb;en-us;131022&Product=vss

The VSS FAQ might have some useful information for you as well:
http://www.michaelis.net/SourceSafe/Faq.htm

Joe