The description and FAQ might be able to help you out here and here. Although I probably could make this clearer within the mod.
The simplest parts to remember, is that the tier 1 and 2 machines can recycle almost every finished products, except for fluid products and they cannot recycle intermediates (recipes that can utilize productivity modules, like ores into plates, or copper cables, green circuits, gears, etc). Tier 3 can recycle fluid recipes, and Tier 4 can recycle almost any recipe (including intermediates).
The main reason intermediates are reserved for the highest tier, is because they allow for an exploit where you can craft an item with productivity bonus, recycle that item, and then craft it again for more productivity bonus, essentially generating free items. I didn't want to patch out a feature that some users enjoy, so I just locked it deeper into the tech tree, so it can't be abused (or stumbled upon) until later in the game.
There's not really any "best" way to implement the recyclers (that I know of...), but I'm pretty sure the way you're utilizing them is the "power user" way. The last save I received from one of my users basically had the same setup; looping items around recyclers, while filtering out the items they wanted to keep.
Personally, the way I use it (and the main purpose of the mod) is simply to recycle items that I no longer use (like pistols and boxes and furnaces and mistakes). So I don't have any experience using it in any other capacity