You should have three modes to use the tool in. There are three small buttons on the shape toobar. "Shape Layers", which makes each shape a layer. "Paths", which makes vector paths instead of shapes (you can after that do what you want with those shapes, stroke, fill, etc). The third just creates a filled circle shape. You can't however make them individual on one layer.
I think if you did it with a brush it would probably go smoother. You can even make your own one if you need larger, smoother circles.