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.
I've cloth diapered two of my three kids. No one way, one type of diaper/cover arrangement is best. It changes with the age of he child, your child's "build" (long and lean vs chubby) and the situation (night vs day, car rides vs playing outside). Sorry, but it's not as simple as 'sposies (disposable diapers). But, it is worth the effort, both physical and mental.

My go-to resource (both for advice, and for products) is www.greenmountaindiapers.com

I guess if I had to sum up my experiences, I'd offer you this:

Stay away from synthetics of any kind for your diapers themselves. Synthetic=Stinkies (and rashes!) Cotton is the best. I wish I had never spent even 10 cents on anything other than cotton.

Wool is freakin' awesome. Super super super. I love wool. And I'm not a granola girl or anything like that. It's just easy, and effective.

Here's a secret no one will tell you: old receiving blankets (the flannel ones you got a million if at your baby shower) are super cloth diapers. They are called "flats" in the cloth diaper lingo. There are tons of videos on line that show how to fold em. I love using these when I need a "trim" fit, which is tough to get with cloth.

As for "thickness" it boils down to this: Slim fit=change every two hours. Thick & bulky = 4 hours or more. Add wool as a liner and a cover and you can go all night, no wet sheets.

Polythene (PUL) covers are the norm. You can use wool too, but either way, yes, you need a cover. Exposed PUL is good for little babies who have liquid bm's every couple of hours, because you can wipe out the liner the same way you wipe baby's bum. Otherwise you need at least 10 "lined" covers per day because you have to launder the poopie out. Did I say this already? Wool is awesome. You just wipe poop off wool too. Wool covers repel stink. You only wash them once a week AT THE MOST unless you had a "blow out". (I wash mine twice a month now that my baby is almost toilet trained! )

I'd wish you luck, but more than luck you need patience and perseverance. Happy diapering.