Intonation is related to the ability of an instrument to achieve the desired pitches. The open strings don’t have “intonation” per se since one can alter the tension on the open string to achieve any desired pitch. The issue of intonation is as you suggest about pitches relative to the open strings.
Ideally, you’d like the intonation to be within acceptable variation throughout the full range of the instrument. That would include around the 12th fret and fifth frets. It shouldn’t be necessary to sacrifice one position for the other. However, if you play primarily in one location, you can set up he intonation to favour that location.
To make a long story short, the harmonics belong to just (Pythagorean tuning) while the fretted notes are designed to belong to equal temperament. The only places where the pitches are the same are at the unison and octaves. Thus, only use harmonics that are unisons or octaves of the open string being intonated, else you’re mixing apples and oranges and will be chasing your tail intonation wise. The fretted notes should be in tune. Harmonics can be used as a standard to which to compare the pitch of the fretted notes.
Narrower frets place the defining location of the fretted vibrating string closer to the Center of the fret, the position defining the location of the frets. If all of the frets are of the same width, shortening each fretted vibrating string equally, the intonation setup should compensate for that.
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