I had the same questions on my TY175. Looking at the Haynes Manual, Page 86, Picture 37.8, and my cylinder exhaust port, I believe the factory gasket is inset into the cylinder. On my bike, it is compressed and appears flush with the surface where the exhaust header studs are. A PO smeared copper gasket maker all over the place and it was not leaking.
Therefore, I believe the proper fix (since I have a new gasket) would be to remove the compressed gasket, and install the new one. However, before my new gasket arrived, and I figured this out I had already made a thin copper gasket to go between the cylinder and exhaust. Seems to work fine, but I'll be ready to pull the old gasket and replace with new if I notice any leaks around the exhaust header.