I’ll start off by saying that while we do have SVN integration in the editor, our QA department has not done much testing on it, so it is not officially supported yet. It’s currently very much in a “use at your own risk” state. That also means that we don’t have well-defined instructions on how to use it yet. With that out of the way, I’ll try to answer your questions as best I can.
To set up a new workspace to use a project contained in a repository, you will need to set up a local working copy by checking out the project from your repository using your standard SVN tools (command line, TortoiseSVN, etc.). Once the working copy project is on your local machine, you can then open it up in the editor and set up your source control settings.
The File > Submit to Source Control workflow has not been tested much at all. Additionally, going that route will also attempt to submit all of the Engine content (which is hidden in the Content Browser by default). Your assumption about syncing deleting the file since it wasn’t in the repo sounds like a good guess; I’ll add that to my list of things we need to check with SVN.
I’d also like to point out that if you keep running into SVN issues in the editor, it would be best to post them to our AnswerHub site, as that will help us track the issues. This post should give you a good idea on how to provide us with the info we need to address your problems more readily. I’d like to point out that, for entering source control issues, you can make your logs even more helpful by running “Log LogSourceControl Verbose” (without quotes) in the top-right console bar (should say “Enter console command” in grey text) at the beginning of your session.