The -C 5 should be in the command line options in the advanced settings of Squeezelite in the Audioplayer menu.
The server does not impede on your playback, Squeezelite is the player unit for the server to play to.
As I’ve mentioned, the Spotify Connect player is only really useful for standalone Spotify systems. The Spotty plugin for the Squeezebox Server with Squeezelite as player is a more comfortable and feature-rich option. You can quickly and easily set it up with the HowTo I linked above.