Hi UP5521,
First the water, keep the boiler between 50% and 70% full, add water when the safety valves are blowing off or if the boiler gets below 50%. If you add water because the safetys are blowing dump it in fast but if it is just because the boiler is getting low add the water slowly. You should try to adjust the injector so the boiler maintains a constant level, a little more when climbing an incline, a little less when decending or slowing down.
Add coal when the fire goes down to an orange colour usually only two or three shovles at a time.
In real life you can also add coal to damp down the fire when the safetys are blowing off but this does not work in Trainz.
As for the smoke, this is controled in the performance options, see "particle affects". The amount of coal you use will not make any difference to the smoke in Trainz.
One other thing, when a steam loco is stationary the cylinder drain cocks should always be open and remain open till the train has moved off and the wagon couplings have tightened.
Cheers,
Bill69