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keybounce The altar and your network both store LP. The altar's LP storage is used for things such as slate creation, while the network is used for things like running Lava Crystals or rituals.
The altar has a (current) max tier of 5, so at every level below that you can continue upgrading it. Technically, you should be able to upgrade the altar before you make the T2 orb, as I haven't seen anything to the contrary. I would recommend creating the orb before you upgrade, however.
And yes, it appears you are understanding this correctly. The T3 altar and orb are the point that, IMO, the mod truly takes off with the number of possibilities available to you.
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CodaPDX Yes there is a maximum range, however I cannot remember it currently. I would recommend putting the Master Ritual Stone about 5 below your altar to ensure it's within range. I can try to hop on and run some tests real fast if you'd like to be 100% confident on the distances.
Edit: Ninja'd again. @
hiroshi42 You're quite good at that.