Yes, the dealer will have to code the Touareg because it's not factory installed.
Yes, that little harness requires buying 3 items. The plastic "molex" style connector, and two pieces of wire that have the connector "molex" tabs already crimped on. Those wires get cut in half and you have 4 wires with crimped on connectors to make the adapter for the brake controller. I thought it was kooky that I had to do this, but it wasn't difficult except for getting the parts. I had to go to an Audi dealer that had them in stock, it was cheap.
Yes, the brake controller is tucked up inside the left side of the dash possibly near the A-Pillar. Not possible to see, but by hand you can get it.
You may, or may not, need to install an auxiliary relay to deal with flickering or non-functional brake lights. Tekonsha recommends using it from what I recall. It really depends on the Touareg and the trailer brake lights. For some people the Tekonsha P3 works fine (I have one, and LED trailer brakes lights, and no problems). For others, the small square wave voltage that checks for burnt filaments causes problems with activation of the trailer lights when using the Tekonsha. Test first, then if needed, follow all the instructions in the posts if needed to make that auxiliary relay dongle.
heres a link to operation instructions.
wiring diagram for the breake relay courtesy of eTrailer, a great resource.
There are some great threads that explain all this. Also this is covered in a Cayenne forum IIRC.