In a breast reduction do they make the areolas smaller to be in proportion to the new breast size, and do they re-position it higher?

Absolutley. It is very rare for a breast reduction to not be accompanied by a lift. Your plastic surgeon will generally lift the position of your nipple and make it the appropriate size (about an inch and a half around).
Yes. Heavy breasts puts a constant pressure on the skin and areola and overtime the nipple/areola migrates lower and stretches out. This results in a wider diameter areola which is inferiorly displaced. The goal of surgery is to reduce the volume of the breasts but also to restore the normal position of the nipple and reduce the diameter of the stretched areola.