Quench is measured from the top of the piston to bottom of the head. For example, if you have a head gasket thats compressed thickness is .041", then your piston would need to be .006" above the deck to have a .035" quench.
The theory is that having too much clearance allows hot spots to develop causing potential power loss. Keeping a tight quench which many people will debate on how much is right, will create turbulence in the chamber which cools the top of the piston. I have seen alot of tests that showed anywhere from 4 to 9hp difference in a 350. Keeping a proper quench also helps prevent detonation. Its often said a 10:1 motor will ping less with a proper quench then a 9:1 will with too much quench. The overall standard for a v8 not using aluminum rods is .035". I have seen people argue anything from .025 to .050 is ok, in my opinion .025 is too small.
Shoot for .035 - .045 If you are going to be pushing the limits of pump gas it is well worth the extra effort. It will help prevent detonation. If you are running a lower compression engine then I wouldn't worry about it too much. Lots/most of the factory stuff came with no quench at all. If you are doing a mild build then it may not be worth the effort. Personally I shoot for .035 on my performance builds.
There is no way to know untill you assemble it. There are so many things that will change it such as how many times the rods have been honed, the block being line honed, all this will make small changes in your piston height.
I had a small block that was undecked and I am pretty sure that the pistons were .020 in the hole, I cant remember exactly. It is right that you will have to assemble it to get an accurate measurement though, Anyway, a .039 gasket would have opend the quench area too large. After alot of looking around, I found only one gasket that was under .039. It is actually a gasket for a Vortec head, but it will work with any head, there is no difference other than the thickness. The chevy part number is 10105117.
Here is a website that offers that gasket ( it is .028 crushed thickness) Scroll down to where it says "special head gasket for vortec heads" dont be worried about "special" they also offer "special" spark plugs for vortec heads (which are not needed).