I'm going to toot my own horn here just once: If you want an easy overflow, check out this thread: http://www.aquariumadvice.com/viewtopic.php?t=13892
total cost was around $7 US.
for your questions... there should be a few threads here on drilling acrylic, refer to those for what to use... references to pipe diameter refer to the inner diameter of the pipe. But you shouldn't have to worry much as, if you go to a hardware store and ask for 3/4" pipe, they'll know what you're looking for.
Folks use dremel tools, table saws, and the less acurate hack saw for cutting the teeth in the overflow.
THe U-tube should be large enough to allow enough siphon to handle your return pumps volume. a 1" U-Tube will handle about 300 gph
... I think.