The hood has peaks and valleys because the image is rectangular and thus has a wider field of view horizontally than vertically. The cutouts are needed to prevent the hood vignetting (casting shadows) in the corners.
Basically if you imagine a cone getting slowly wider, and then you punch the view frustum through it (to prevent any occlusion of light making up the image)
then you get the shape of a traditional "petal" lens hood.
The correct orientation is with the larger peaks at the top and bottom and the smaller peaks at the side.
You tend to see petal shaped hoods more on zooms and wide angle lenses. The reason for this is that the petal shape is more efficient compared to a traditional round hood. On a wide lens a round hood would have to be very stubby to avoid getting in the way of the image, whereas a petal can extend into areas which don't affect the image to offer additional shading.
Zooms, even in the telephoto range (such as the 70-200) usually have petal hoods for the extra efficiency as the hood on a zoom has to be designed to accommodate the widest focal length. Generally you want the hood as tight as possible without getting in the way of the image, thus a hood designed for 70mm is not as useful when you're zoomed in to 200mm, here the extra shading of the petal design helps.
Prime lenses have hoods designed and optimised for a single focal length so they are as tight as possible, thus petal designs are often replaced by round hoods which are more compact and cheaper to make (unless they are really needed, in the case of wide primes).