The nipple should point to the baby's upper palate and the whole of the areola is in baby's mouth. If the whole areola cannot fit, at least most of it that's below the nipple should be in baby's mouth. It's the lower jaw that "powers" sucking so it's that area with the most friction. You'll want baby's lower part of the mouth to be scraping against the flesh outside your areola (that's why you want as much of the areola inside baby's mouth). Lips should be turned out (like a fish) not turned in (like an old man).
It should not hurt when your baby latches. If it hurts, it means your baby is not latching correctly. Your baby should be swallowing in a rhythmic manner and her body should be facing you. Try to squeeze your breast in a "sandwich" shape with your fingers to fit your baby's mouth. http://sg.theasianparent.com/latching-and-unlatching-during-feeds/
Ditto what Dazzle and Jamie mummy has mentioned. On top of it, a good latch should not hurt. To ensure there's optimal milk transfer, a good indication would also be in the diaper count. If in doubt, consult a lactation consultant on how to latch and the various latching positions that may help in a better latch.
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