A water line is a must. It allows for easy cleaning of any debris that collects at the water line. Plus, the plaster finish should not be exposed to the air. It's meant to be under water.

Any tile choice is fine. In a area where you have freezing temps, a frost-proof tile is required.

The typical water line tile is 6"x6" but you could always go bigger and further into the water. For freeform shaped (radius) pools, smaller sized tiles work best going around tight turns.