It is active dry yeast (ADY) that is rehydrated in a small amount of warm water before adding to the rest of the water or other ingredients. Instant dry yeast (IDY) was designed to be added directly to the flour.
The dough preparation method you described is essentially the method that Tom Lehmann recommends. He believes that adding the oil to the dough ingredients earlier in the process negatively affects the hydration of the flour. Others believe that uniform distribution of the oil throughout the dough is just as important, and maybe even more so, and hence add it to the water or other ingredients in the mixer bowl. So, you can pretty much take your pick on the method to use. I personally have found that if you use 1% oil (the amount called for in the Lehmann NY style formulation) and add it later in the dough making process, it will incorporate into the rest of the dough quite easily. However, I have found that above about 4% oil, for essentially any regular dough, it is much harder to get the oil to incorporate into the dough without having to intervene in the process, as by using your hands to incorporate the oil. I have found it better to add the oil to the water up front.