Barley straw does not kill existing algae, but it inhibits the new growth of algae. The exact mechanism is poorly understood, but it seems that barley straw, when exposed to sunlight and in the presence of oxygen, produces a chemical that inhibits algae growth.
Barley straw does not reduce the growth of other aquatic plants. In fact, in some cases aquatic plant growth has increased after barley straw applications because algae are no longer present to compete with the aquatic plants.
With regards to where to position the bale, the Penn State paper recommends:
It is best to anchor the straw packages to the bottom, but provide a float to keep the straw near the surface of the pond where sunlight and oxygen are more prevalent.
This and other articles warn to replace the bales every six months. Otherwise, as the barley continues to decompose, they will eventually become a nutrient source for algae and potentially deoxygenate the water and endanger the fish population. I have put on my calendar to replace the bale In September.
I thought of placing the bale in the upper pond where it would get good flow across it and lots of sunlight. This is shallow water without the danger of the bale sinking. The other, less obvious location, would be at the intake to the skimmer in the lower pond. This is deep water so it has more of a potential to sink. The latter position is where it is starting out.
