The bottom to a heatsink is not perfectly flat. Therefore, you need something to microcosmic gaps between the HSF and CPU core. If the contact is bad, you CPU fries and stuff. Therefore, you apply either(exclusive) a thermal pad or thermal grease to provide a smooth contact. Pads are cleaner, grease give better temp. You need this.
Shims are for increasing the surface area of the CPU. Mostly a pain though and doesn't do that such. YOu are better off without.
The logical sequence is take the HSF off. Clean off any thermal grease left over on the CPU with alcohol and elbow grease. Put a new layer of grease on(very thin layer-theoretically one molecule thick but don't fret if you can't do that. Just make sure it is thin) Then, attach the HSF on.
Last note, Volcano 7+ realy sucks and the stock intel HSF, at least for the P4, are decent. It won't get you a much better temp/overclock and will drive you crazy with noise. Just my 2 cents though.