In smallpox, towns would be quarantined, and those who were in contact with the disease would indeed be taken from their homes, since smallpox in the early incubation period is not infectious. Such contacts would be kept in hotels or barracks for a period of time until it was clear that they were free of the disease, at which point they would be allowed to return home. The term "quaranine" comes from forty days: I.e. a ship arriving from an area of disease had to sit in the dock for 40 days before the passengers were allowed to leave. Alas, there are reports that everyone on such ships might die during the 40 days, from close contact of passengers with the diseased patient, but the seaport cities would be kept free of disease.
A good scenerio for a biological outbreak can be found in various bioterrorism sites at the CDC American college of physicians, or the AMA website.link Or just rent Stephen King's "the Stand".