Exterior Windows

For my Garage, I need to replace a couple of windows.
The rot has fully destroyed the windows in my detached garage, and the City is on a Fix-It-Up campaign. I cannot afford to have the windows custom made, so I thought I might try to make the windows myself. After all, it just my backyard garage, and might be a good learning project. Thus my questions:
1 - Windows, which side is exposed to the weather: the glass and glazer's compound, or the wood molding with the glazer's points and compound to the inside?
2 - For windows that are really just for light and are not functional, is there still any reason for the design to have the styles mortised into the rails? Since I am not an expert, I would rather make the windows more water damage resistant by having the styles run from top to bottom, and the rails mortised into the styles. I realize that if these were counter-balanced functional windows, the bottom rail would need to go completely left to right. But these are not functional windows.
3 - The previous window design had a 2x6 across the bottom as the sill. Then a 1x3 from the weather front of the sill back to the window. The window was back behind this 1x3, so the bottom 3/4 inch was covered by this 1x3. The bottom the window had water damage; which I think was because water would run down the window and get trapped between the window and this decorative piece 1x3. That 1x3 adds a lot to the overall look of the window, and I would rather keep it. Any suggestions on a better design? Add a another 1x3 behind the 1st? This would have the window's bottom sitting on this new piece of wood, and the bottom edge exposed to the weather.
4 - Is there anything that needs to be done to the 2x6 sill to help rain water drain off the sill? Like route a 1/8 inch deep groove on the underside so the water will drop off rather than bead to the garage wall?
Thanks for the replies.
Phil
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How'd that happen?

Compound to the outside.

Doesn't really matter. The prime determinants of how well a wooden window, or indeed any wooden outdoor article, resists water damage are: 1) the natural rot resistance of the wood 2) a good paint job 3) some place for water to drain away to, so the wood isn't continually wet.

The design is fine -- the problem is that there should have been a bead of caulk to keep water out of that joint.

Not necessary. Paint and caulk. That's all.

Best if it's pitched slightly, so that water drains away from the building instead of just sitting there. And yes, the groove on the bottom is a good idea, for exactly the reason you cited.

--
Regards,
Doug Miller (alphageek at milmac dot com)
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