The size of the cut-out depends upon how much you want to allow the glass to move (and thus, change thickness). The fiber paper can be up to about 1/8″ “shorter” than the glass stack. If it is taller than the glass stack, you risk needling on the edges that then have to be coldworked.
I was describing two methods — one is the cutout. The other is basically just wrapping the outside edge of the glass in fiber paper. For instance, cut long 1/8″ strips. Use stainless steel dressmaker pins to join the edges (overlap them 1/4″ or so) — making one long piece that can wrap around the outside edge of the glass several times (yes, the fiber paper is “on edge”). Then secure the final edge with more pins. Use kiln furniture to help hold everything in place. I will often put kiln furniture in places where two pieces of fiber paper are overlapped & joined with pins. These could likely be your points of failure when damming.
Check out how I have wrapped the edges of a blue/brown swirl bowl in this blog post: http://jestersbaubles.blogspot.com/2013/03/culmination-of-weeks-work.html
Jester’s Baubles Fused Glass Designs