What's the best way to track time in Intervals?

Your best bet is using timers...and more specifically task timers. When a task is created it is tied back to a project and a module. Remember a module can be a feature or a "phase" of a project. For example lets say we have the following:

Project: New web site design
Module: Shopping Cart
Task Name: Order fulfillment

When you start working on the task start the timer. When you are done working on the task, stop the timer and apply the time for the type of work you have been working on (Production, Development, Database, etc.).

When time is applied to tasks as described above you can get very granular reports:

New web site design >> Shopping cart >> Order Fulfillment >> Production

If you bill hourly, you will be able to see the $ amount of work performed for the shopping cart and for the individual tasks used to build said shopping cart.

The above scenario puts a premium on setting up the project in a meaninful way. There is no substitue for creating accurate modules and assigning clear tasks.

What if you don't have a task yet?
- use the general timer in the footer
- add time manually to the timesheet

With Intervals it's all about tracking time and applying it. It's flexible and there are multiple ways to add time, but the preferred method is task timers if you need very granular reporting.