Yes, your top drawing is the standard way of doing this. But it's important to really understand why this is better than your first attempt. What do you really want your controller to do? Minimize error and respond to the input. Think of a cruise control in your car. Suppose you are going 55mph and then ask for 60 mph, isn't that mostly the same as going 60mph and then asking for 65mph? It's the 5mph error that is the most important thing to correct for. Your controller probably doesn't really need to know exactly what speed it's going if it can reliably respond correctly to the error.
- The differentiator's job is to respond to quick changes in the error and rapidly adjust the output. This is often the least important term and is frequently left out. It is often the most difficult to use correctly.
- The integrator's job is to only respond to the errors that are present for a long time and slowly adjust the output to eventually get it to the right place. This term is essential IF you want your system to actually get to zero error, and is really easy to use in practice.
- The proportional term is to deal with the in-between response, not too fast, not too slow. It turns out it is important when you start to deal with the stability and frequency response characteristics of these systems.
Think about when you are driving your car. You are the controller, monitoring your speedometer and trying to get your car to go the speed you want. When you step on the gas quickly anticipating a need for more power, you are acting like a differentiator (like maybe when you start to go up a steep hill). When you guess how much to push the gas part way down because you see your speed isn't right you are acting like a proportional controller. When you slowly make small adjustments to eventually get your speed perfect, you are acting like an integral controller.
However, there are lots of times that we do just feed back the output to to adjust the input in feedback systems. This was, in fact, the genesis of feedback in electronic systems. The telephone company needed amplifiers that wouldn't change their gain with perturbations like temperature, age, parts replacement, etc. The only information they needed to do that was how the amplifier was working, the inputs didn't matter. I would call this local feedback and isn't really the subject at hand, control systems. This type of feedback is undoubtable buried in the box labeled "amplifier", "G", or "H".
Sorry, I just don't understand the context of the second diagram. It's not standard, it's not a PID controller, but that doesn't mean it's wrong for whatever problem they were working on.