When to read the novella collection? I read it after Heir of Fire which I wouldn't recommend. My advice depends on your reading habits:
A) You are already committed mentally. You want to tackle the whole series no matter if the start isn't your cup of tea. = Read it first. It will support the journey and since you're already committed go with the chronological order.
B) You don't buy a whole series. You want to "dip your toe in" and test the waters. If you don't like the first one or two books you dnf. = Read it after Crown of Midnight (the second book). If you already disliked the first one there is no way you will like this novella. Reading it like this will help you get all the references and dive in. After Heir of Fire you don't want to go back.
My opinion: This book is very similar to Throne of Glass. The vibes are very fitting and I really enjoyed the first and third novella. I did love Sam as a character, very consistent. By contrast, Caelena was really inconsistent. She lacked her spirit and logic in the last stories. It felt like I met two different characters. Besides that I think that it's a fine prequel and worth reading to get the references later on (or before, depending on your reading order).