Replace the phrase by "moment arm." The vector component of the force that is orthogonal to the direction of motion. There are two moment arms relative to the axis of rotation, one to the center of gravity of your payload, and the other, to the counterweight. When those two are equal, you are balanced.
As you surmised, moving the counterweight as far out as possible allows you to use the least weight (unless you are swinging the mount really fast, then angular momentum enters the room). Keeping the declination axis to the OTA as short as possible also helps the need for a heavy counterweight.
Keep in mind that like worm gears, even a strain wave gear can actually benefit from a slight imbalance. You don't want to perfectly balance the mount. With the amount of torque in an RST-135 and its servo motor for example, a counterweight is more for keeping the tripod from falling over (the center of gravity falls outside the triangle that makes up the base of the tripod).
Furthermore, lots of counterweight will add to the total payload that the RA axis is carrying -- thus you see specifications of max OTA payload when a counterweight is used (and why the recommended counterweights are quite light). At some point, that RA axis will fail, no matter how balanced it is. If you are adding your own counterweight, I would recommend not exceeding the weight of the counterweight that the manufacturer sells (lighter is fine).