http://www.cfs.purdue.edu/Class/F&N2..._Tutorial.html
The butt and picnic are part of the front shoulder. Butt is a better cut (higher on the hog). Similarity to beef is a chuck roast from the butt, vs. an arm roast from what would be the picnic on a hog.
As they come off the hog, both have a bone. Someone might be buying a picnic with the bone removed. I'd think the picnic would be good for sausage, but you will need to watch for the sinew, as that will get wrapped around your axle and cutting blade. As always, grind chilled to partially frozen and clamp your blade down tight on the blade.
As for adding fat or not, I think it matters on what you are making. Stuffed sausage of about all types made from a butt or picnic have enough fat as is.
For bulk breakfast sausage, which is typically formed into a patty and fried in a pan, a little extra fat won't hurt. You get a nice texture vs. a hard, rubbery piece of meat. I'd say 1 pound of fat to 9 pounds of cubed butt (10% extra) would be about right. The right amount is when it will cook in a frying pan without sticking. If your sausage is shrinking and you are getting a ton of grease left in the pan, you have too much fat.
Breakfast this morning was a large patty sized wad of breakfast sausage, browned and broken apart into small clumps, then I added about 1 tablespoon of flour, which combined with the sausage and small amount of grease in the pan, then a little milk and heated until it thickened into a nice white sausage gravy. That went over a sourdough biscuit with a fried egg on top. Without that little amount of extra fat, I was going to get clumped up meat wads and not much grease for the gravy.
I've been using fresh butts for my sausage and the same store that sells the butts sells one pound packs of "pork fat for seasoning" on foam trays for 49 cents a pound. When you are out and about looking for your supplies, keep an eye out. Not many food stores will carry pork fat in the meat case.