Is there a diagram showing how this is hooked up to the water heater and the complete circuit?

Yes, there are plumbing diagrams posted here.

I have a instant hot water heater which is installed on exterior of garage. Fittings are silver brazed. Must the pump be installed inside? Must it be adjacent to heater?

No the pump does not need to be installed indoors or adjacent to the water heater.

The pump can be installed on either the cold water line that feeds the water heater or the hot water line that goes out of the water heater.  If you are not installing it by the water heater you need to make sure it is installed before any connections in or out of the water heater.

For instance on the cold side the cold water line into your house tees off with one side going to the water heater and the other side feeding the cold water lines for the rest of the house.  The pump and Flow Monitor need to be installed between the water heater and the tee.

If you install on the hot water line out of the water heater the pump and Flow Monitor needs to be installed before the first lateral to a hot water fixture.

We suggest by the water heater because it is usually easier but if you don’t have room other locations can work as well.  If you want to send me some pictures or give me a call I can help you decide what is best for you.