The beginnings of short steps are a good addition to any medium level horse's repertoire. As the horse understands half pass, working canter pirouettes and the flying change it is important to also develop a range of motion in the trot, ranging from a "very collected trot" to the extended trot.
It depends on the horse what the best way to begin the piaffe is, whether it is undersaddle or in hand. A very collected trot is required in fourth level so it does need to be taught undersaddle, but with some more sensitive horses it is a good move to teach them without the weight of the rider.
If the piaffe is being taught as a trick, then it doesn't really matter how you do it, it will just be a trick. To develop correct piaffe can take years and requires a very skilled trainer that will neither make the horse nappy or too flighty and will be patient in not pushing the horse beyond what his body and mind are currently capable of.