What an adorable pattern! Thanks for the link.
The body is cast on at the neck and knit to the rear. The sts that are put on scrap yarn or a holder are for the tail. The sts described below for the head are picked up at the cast on edge.
1st dpn: PU 8 sts (1 for every other CO st) beg at 1st CO st
2nd dpn: PU 16 sts (one for every CO st)
3rd dpn: PU 8 sts (1 for every other CO st)
The cast on was 16-16-16sts, so this makes sense of that distribution of sts (8 out of 16sts--16/16--8/16)
I like your idea of a puffball tail. Sure, just continue to decrease and then close up the rear end before adding the tail. The knit in tail is nice for a very young child who'd be likely to pull off an added tail and try to swallow it.