generally, 120 psi is the accepted norm .. some engines have more.. i've heard as high as 160. and i've read that about 80 is the minimum required to get a bike to start.
You're engine is shy about 40 psi and thats a whole lot, assuming the gauge and method is correct.
Yes.. gap is checked by slipping the ring alone into the cylinder. Since the bottom of the cylinder has the least wear and is likely to be the correct bore size, a manual would tell you to put the ring into the bottom of the cylinder to measure ring gap.
New rings are gapped before installation on the piston. If there is insufficient gap, the rings could bind when the engine is brought up to running temperature. If gap is too small, a bit is taken off with a file.
As rings wear thinner, this gap increases.