This is 2 years later but I thought someone might benefit so I'm posting up what I know.
1st - There are 2 COSTEP programs, the JRCOSTEP and the SRCOSTEP. The JRCOSTEP is like an internship and is completely non-obligational. You have to fulfill a minimum of 31 days and a maximum of 120 days. The SRCOSTEP is something you apply for during your 3rd year of school (given a 4 year program) and if you are selected for a site, they pay you at salary for a certain amount of time during your 4th year (depends on when you were selected). So let's say a salary for a pharmacist is 50K (that's an estimate, I actually have no idea.) That means for let's say, 10 months of your last year in pharmacy school (August-May), you'll be getting paid a salary of 50K. The caveat is that because the USPHS paid you for 10 months, you then have to give them twice that amount in return. Meaning you have to go work at the site that sponsored you for a minimum of 20 months.
2nd - I'm a PharmD student and did a JRCOSTEP the summer after my 2nd year. For Pharmacy students, that's the earliest you can do it although I think for Med students it may be after your 1st year, so it varies based on program. The way the selection process works is that you fill out the application and on it indicate which agencies you'd like to work for (FDA, IHS, etc.) and then later on if a PHS officer sees your application and wants you to work for them then they'll contact you. Be cognisant that the application for a summer COSTEP is DEC 31st, and is different for a fall and spring COSTEP.
3rd - My JRCOSTEP was at IHS Headquarters in Rockville. Theoretically, you could go anywhere but that depends on if someone selects you, so it's not really up to you. You can always turn down an offer and hope that another agency selects you (my friend turned down an offer from IHS and then received and accepted another offer from FDA) so if you're really gung ho for one agency then that's an option, but a second offer is never guaranteed. Finally, if you want to read about past experiences, you can do so here:
www.hhs.gov/pharmacy/costep97
And lastly - I love the Public Health Service and definitely hope to sign on after graduating!!