Question: In my application, should I let my first-choice school know that they are number one?
Yep. Absolutely let your first-choice college know the good news. It may not help your chances of admission, but it might. Everyone likes to be loved--even colleges--and it certainly can't hurt.
You don't have to worry about your other target schools finding out that they're not equally adored. Admission folks don't share that kind of information. (However, just as a matter of principle, it's not a good idea to tell every school you apply to that they're number one.)
While you can always find a spot on an application form--or in a supplemental note or essay--to express your interest, sometimes a good way to truly impress admission officers with your enthusiasm is by providing compelling reasons to explain why their college is the right place for you. In other words, don't merely proclaim your devotion to Dartmouth or Denison, Princeton or Purdue. Instead, explain why you feel the match is perfect. Some colleges require entire "Why us?" essays. Others ask the question more briefly on their application forms. Almost every interviewer will ask, too. Make sure that your reasons are more substantial than, "The campus is beautiful and I know I'd love it."
Of course, the best way to tell a college that you really want to go there is to apply early decision, if the option is offered and if your family finances make it feasible.