Question: What kind of cloth should be preferred?  

What should be the thickness of the cloth?  

What should be the shape and size of the cloth?

Do we have to use a polythene cover on the outer side of the diaper to prevent leakage?

Answer: 
From an article by Laura Schmitt for *Mothering* magazine ("Crazy for cloth: The Benefits of Cotton Diapers." By: Schmitt, Laura, *Mothering*, 07333013, Jan/Feb2003, Issue 116):

* "If you opt for a diaper and separate cover, the diaper will not be waterproof, and its main absorbent fabric will be cotton or hemp. It is best to avoid diapers that blend in polyester or other synthetic fabrics, as they repel water and therefore don't absorb as well as a 100 percent natural-fiber diaper."
* Unbleached fabric lasts longer.
* Organic cotton hasn't "been treated with pesticides and chemicals in the growth process." Organic Egyptian cotton is known for its softness.
* Terry cloth and soft flannel are durable.
* "A blend of cotton and hemp is unmatched in absorbency and comfort."
* "Polyester fleece is often used as a top layer in a diaper for the purpose of wicking moisture away from the child's body and preventing diaper rash."
* "Twill is the standard for flat, prefold diapers. It's durable and soft, and fluffs up considerably after several washings, although it can be bulky between the legs."
* For a diaper cover, choose either wool (breathes the best and can be re-waterproofed with lanolin) or cotton with an inner waterproof layer. Other waterproof fabrics do not breathe as well, but are easier to launder.
* Prefold diapers (traditional, rectangle shape) no longer need pins when used in conjunction with velcro diaper covers.
* The author prefers fitted diapers, which velcro, tie or snap creating a snug fit and preventing leakage. These still require a diaper cover.
* All-in-ones are nice to have for outings, but they are expensive, take longer to dry, and may not fit as well.
* Consider using liners or doublers for extra aborbency at night.

I accessed this article through the Ebsco databases at my library. If you would like to read the whole article, contact your local library for easy instructions. The full article also includes a cost analysis and washing instructions.
When I bought ours, I bought them lightly used (don't judge. =]). That means I tried a few brands. The ones I likeds best are the one size fits all. Our boy just turned one and we have been using bumGenius since we ran out of disposables that were given to us. And the doctor just told us he's about the size of an average two year old. If I could have, I would have bought several one size fits all of some sort (15+ for one baby) but also some wool ones to sleep in that are size specific. The pee tends to leak more often out of all in ones at night than it does for disposables. The wool ones we had when he was a newborn seemed to work well, but he quickly grew out of them. It would seem very expensive to buy anything but one size fits all given the number needed for even one day and how quickly our little guy grew. That being said, he seemed way too small for the all in ones as a newborn.