Within the region or settlement should be fine, they will convert automatically. Also having your religious building, (church, chapel, masjid), in the settlement will convert as well. Be aware though, that if a rival religious agent is in your lands, they will convert the populace away from your religion.
Once a Catholic priest has over 5 piety, he can be chosen as a Cardinal, which gives him the option to vote in papal elections, or even be elected as pope himself. Muslims imams and Orthodox priests do not get this however.
Since your new, I may as well explain the crusade/jihad function, since it ties in with religion. If you have high enough standing with the pope, you can request a crusade to a certain location, from a list. Muslim factions call jihads simply by having an imam over 4 piety, so its much easier to call them.
Once one your particular holy war, any army that joins doesnt pay upkeep, and gets access to special unique mercenaries, as well being able to move at double speed. Be aware though, that if you dont continually move towards the target, your soldiers will begin deserting.
I've written a lot there, but I hope it is of use to you. Welcome to the Total War Centre by the way.
