I want to use encryption algorithm available in .Net Security namespace, however I am trying to understand how to generate the key, for example AES algorithm needs 256 bits, that 16 bytes key, and some initialization vector, which is also few bytes.
If you are using encryption to exchange data then you will need a key exchange protocol, but you don't make one yourself instead use one off-the-shelf like TLS or SSL.
If you use encryption to store data then you generate the IV using CryptGenRandom (or its .net equivalent RandomNumberGenerator.GetBytes) and save it along the document (in clear, no need to protect the IV). You never write down the key, the key is provided by the user. Usualy you derive the key from a password phrase using CryptDeriveKey, or its .Net equivalent PasswordDeriveKey.CryptDeriveKey.
To store a secret in the database that is available only to the user and an administrator you need to use 3 keys:
In theory you encrypt the data with DK and then encrypt the DK with UK and save it, and encrypt the DK with AK and save it. This way the user can use again the UK to decrypt the DK and then decrypt the data, and the administrator can use the AK to decrypt the DK and then decrypt the data. The big problem is the fact that the system is always automated, so the system needs access to the administrator's key which means is not truly a persnal key of the administrator, but instead is a system key (it cannot be used for purposes of non-repudiation for instance).
As a heads up, knowledge of what IV is or how to use AES from C# and how cryptography algorithm work will get you exactly 0 (zero) traction in solving this kind of problems. The issue is never what IV and key to use, the issue is always key provisioning. For actual crypto operations, just use the built-in support from the database, see Cryptography in SQL Server. I can easily argue that the only facility you need is TDE (Transparent Data Encryption) to protect against accidental loss of media.