How do I set up PhpStorm for plugin development
I point File-&gt;Open Directory at craft/.., and PhpStorm pick up everything for me. You probably have to set up path mappings to make debugging work properly, but PhpStorm will alert you to that and launch the mapping UI.

I have a sandbox Craft install running at local.sandbox.dev and I create a git repo in the plugins directory, and develop the plugin in there. That way I can have multiple plugins in this sandbox, all with different repos, whereas the Craft install itself is not version controlled. Makes it easy also to dump the entire installation and replace it whenever the database becomes too mangled.