Primary voltage drop in current transformer
Some answers: -

Where does the voltage drop occur? Does it fade in and out with a peak
right inside the CT?

The maximum volt drop/metre (\$\frac{dv}{d\ell}\$) is in the middle of the core and rapidly becomes the normal volt drop/meter for a wire beyond the core.

Would we see a larger reading on VM2 compared with VM1 (10 mm and 5 mm
from the plane of the CT, for example)?

Yes we would because of the normal external volt drop of a longer cable (Ω per metre and inductance per metre).

What is the relationship with the dimensions of the CT?

If you are asking at what point the internal higher volt drop per metre becomes regular wire volt drop per metre for a given size of CT, I can't say. I can't imagine that much beyond twice the core width it would be very much influenced by the core. Good question though.

What is the effect of the angle between the axis of the CT and that of
the cable.

I don't think there will be much effect given that in practice, the angle probably isn't more than about 45 °. Another good one!