Which "Registration Component" is Preferred

It's up to you. First, the Registration Component option only applies if you have disabled Automatic Registration *or* are using a network that doesn't provide an email address for the user (like Twitter). In that case, the user will be sent to the registration page you choose. In all cases, after the registration is complete, the user will have an account on your site associated with their social network.

As for the difference in each:
* JFBConnect has it's own registration flow which is what we solely provided up until v6.0. With it, the user will have a Register and Login section. On the Login side, the user can choose to login to an existing Joomla account and associate it with that account. On the Register side, they can register a new account.
The JFBConnect registration page also lets you add additional fields from other profile extensions, like Kunena, Community Builder, JomSocial, EasySocial, etc.
* The "Joomla" registration setting simply redirects the user to the standard Joomla registration page. This may be beneficial if you've taken some time already to style your normal Joomla registration page.

In both cases, the user will be able to login with the social network or Joomla accounts when they return, so it's mostly a matter of aesthetics.

I hope that helps explain,
Alex

One thing would like is a way to override the default images without have to replace them in /media/sourcecoast/images/provider/name-of-provider.

You should not have to replace the files. Please put them in these directories with your own name, such as icon_custom.png. JFBConnect should detect these images. Then:
1. In JFBConnect > Configuration > Provider_Name, select your image as the 'Default Login Button'
2. In SCLogin > Social Button Settings, if 'Social Login Buttons' is set to Default it will use the values from #1. If you have it set to Custom, then you will need to select your image for each of the providers.

I would like to create a folder in /templates/my-template/html/com_jfbconnect/themes/images/provider/name-of-provider and have JFBConnct grab them from there so that they aren't over-written when I upgrade JFBConnect. You can see the icons I created at: webdev.911truthoutreach.org

If you've added you're own files to the media folder, they should not get deleted when you upgrade JFBConnect. However, please do not uninstall first before an upgrade, as they will be removed.

I've also made a note to document this better in the documentation section, as this is a newer feature we could explain it more clearly I think.