Don't over-think it. Be brave!
Make sure you have backed up any volatile data. If there is nothing worth keeping on the SSD, then sure you can reformat it. There's no "requirement" to reformat, it's entirely your choice.
The Pikify v14 installation process (under the hood) creates an install set of data from the Apple installer, with some "slip-streamed" items from the community. It writes this combined set to your target disk. Your target disk can be any disk, with V14 it is typical for this to be one of your hard disk drive/partitions.
I have tested V14 with a USB memory stick and it's fine. So the answer is you can use either USB or a direct attached HDD. Experience tells me that you should use a HDD because USB is so slow in comparison.
It sounds like you want to target the SSD (I don't know what volumes you have on the SSD, but if I assume one partition, called SSD). Watch the video, drag the SSD to the terminal. You'll get the best experience this way because your SSD will be even faster.
The install set is placed at /Volumes/SSD/OS X Install Data/. This is nicely out of the way of any "normal" system folders, hence you can "upgrade in-place" if you want to (no reformat). When the install set of data is written, you boot the machine from it. It launches directly into the true Apple installer. This stage will create the Recovery HD partition, and it will then create/update the target disk.
The Pikify script is responsible for the first phase, it builds the install set with the community modifications slip-streamed into it.
Once the Pikify script finishes, it asks you to reboot, which starts the second phase, running the Apple installer.
The Apple installer is responsible for the second phase, but it's now using the modified data set.
Once the Apple installer finishes, it will reboot into your new working El Capitan.