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i have created my private cloud using the provider network option. It seems that I can't even create any network/subnet using the dashboard

I don't think that the dashboard allows you to create provider networks. If it does, you may have to click a box or so to indicate that it's a provider network you want.

Is it okay to use the provider network option if my private cloud is NOT connected to the outside world (internet)?

Yes. Of course, your instances won't be able to connect to the internet either. Devstack and Packstack create such "fake" external networks.

i am a bit confused as to when to use the provider network and when to tenant network option

Tenant networks if you want to allow users to create their own virtual network topology.

how does that affect the IP addresses you select for the VMs

VMs get their IP address from the subnet (i.e. address range) they are connected to. In the case of tenant networks, users can specify that address range.

For provider network option, does that mean that i can create virtual network inside Openstack using any IP addresses

It's the opposite. If you choose the provider option, you can't create virtual networks.

What is the recommendation for the sort of IP addresses I should be allocated to the virtual instances, i.e. should it be in the same subnet as the controller and compute node

For tenant networks, any range that the user sets up.

A provider network corresponds to a physical network or VLAN. The address range of the provider network is given by that physical network or VLAN. and might be connected to that same physical network, but in a production environment, most probably not (i.e. management network and provider network are separate. Often separate VLANs).