By default, .htaccess access has been stricken within the Apache config, so the above is not needed.
You need a .htaccess file within each document_root. That means, within the root of every domain.
File permissions, just normal. 640 or 644. Doesn't matter. 640 will also prevent others on the server from viewing your file through the command line.
Best way to redirect for 404 is to use:
ErrorDocument 404 http://www.domain.com/
This will redirect all 404 to the above URL. Just using /index.html will NOT redirect, but just put up "index.html" in place of the file not found.
yerba# rm -rf /etc