Well, you're asking a number of things, but the main thing is how to train your body to react to what you see.
Well, there's a number of ways to do that, but mostly you should try to limit the opponent's options to a number of things. You see, the way you're approaching the game is by being able to respond to the possibilities this person can do in a certain situation. On the defense, you shouldn't really do that. You should coax them into a situation where they do something you want them to do, what is logical for them to do, but they end up doing exactly what you want them to do.
This is basically footsies. For example, something really basic, if you walk up to someone and you keep poking them with your st.B, there's two things that could happen. They could eat it or they could evade it. Evasion could be blocking, but it's also jumping, hopping, backdashing, something that allows them to avoid having a solid connection. With Terry, you continue to poke them, but it's a relatively safe move and positive on block. It's also very far reaching so you continue to poke them with this one move. You poke them from as far as you can afford.
This is where basic footsies comes into play. You change your next given response you have encouraged your opponent to do and do something else. If you use King, King's st.B is a low. You walk forward, st.B, you walk foward, st.B. They block twice. This time, you walk forward and throw them. They eat it. Why? Because they blocked low even though you have to stand to tech a throw. You did 1 thing that easily turned into a really scary mix up.
When you're on the defense though, you should use training mode to your advantage. Record moves or strings where you think something isn't safe or something you've been hit with before. Reaction is about muscle memory, but also repetition. You want to limit the amount of things you think about to punish with. Like Sharnt said, you should have already in your mind what you will do in a given situation. Put yourself in those scenarios and question why they do something or in what situations they do this. Then you're mentally prepared for when that situation comes up.