1) The development kit would be a USB powered device which will communicate with the IDE/compiler/assembler so I could download code to it.
Pickit3 connects through USB and you connect it to your microcontroller on a prototyping board using 4 wires. Easy to program to, easy to read from. it's straight forward.
Arduino boards have a usb to serial chip (either a ftdi chip or a another atmel chip) and the microcontroller on the board has a built in bootloader which lets the IDE transfer code to the board. If you get a single microcontroller and put it on a prototyping board, you need a programmer.. the serial based ones are cheaper, usb based ones are pricier.
2) The IDE is important and would make life easy with debugging, single step and so on? Can I download a few IDEs before buying anything to see which IDEs are better?
On PICs, MPLAB X is free, you can download it from Microchip. Same for XC8 compiler. You can play with it without having pickit3 or microcontrollers. You can also evaluate MikroC Pro for example, to have a feel about other IDEs:
http://www.mikroe.com/mikroc/pic/On AVR, the Arduino IDE is very light. You can download the Microsoft Visual Studio based IDE for AVRs and try that out as well. I don't have much experience on this area, I work mostly with PICs. Mikroe also has lots of stuff for AVR, you can try those as well:http://www.mikroe.com/mikroc/avr/
3) Are there simulators so I could plug my IDE to a simulator and execute code without actually having the chip or the development kit? For example the Android development kit offers a simulator so you can try running and debugging your applications on a simulated Android phone (running under Windows).
On PIC, I didn't have the need for a simulator so I never search for one. AFAIK debugging is a bit limited on 8 bit processors but you can write to a microcontroller and step through instructions and stuff like that. I know there's something in the MPLABX about simulated chip, but I never tried it. There's third party simulation solutions like Proteus VSM for example :
http://www.labcenter.com/products/vsm/pic16.cfm 1) FLASH is persistent memory that I can write with the aid of the development kit board?
Flash is where the binary you make is stored. You can write to Flash using your code, but you have to be careful not to overwrite parts of your binary that's stored in the microcontroller. Also depending on what microcontroller you plan to use, writing to flash is a bit complex and the functions would take up a bit of flash memory so on microcontrollers with very little flash space, it may not be worth it.
If you need to store something in the mcu temporarily, you could use built in eeprom more easily but that one has different characteristics (slower than flash)
2) RAM is volatile memory used by the CPU
Generally there's very little ram on 8bit microcontrollers, the cheapest PICs for example could have as little as 24-32 bytes of RAM.
3) oscillator is important so we do not need to add external components
Most microcontrollers have built in oscillator that's within 1% or less accuracy and stability. If they don't have built in, (at least the pics) you can use a separate oscillator or you can fall back to internal or external RC.
4) A/D is important so the chip can interface with analogue circuits
Most mcus have them. Some of the cheapest or with few pins don't have adc, but you can just check the specs. At least microchip has hundreds of versions and variants.
5) D/A is important so the chip can drive analogue circuits
This.. you have to be careful about. DAC is not as common as ADCs in microcontrollers, fewer mcu actually have it. However, you can produce a variable voltage out of a microcontroller by using PWM and a few external parts, or you can just buy a separate DAC (microchip makes them and they're not expensive) and connect the DAC to the mcu using spi or i2c.
6) clock and word size (eg 8 bit or 32 bit) is unimportant unless we want to write very complicated applications? For example I cannot even imagine why I would need anything better than a 1MHz, 8 bit device. In the 80s those chips used to power personal computers. Can someone give me examples of what the extra bits/power would be used for?
On PICs, the instructions can take more than 8bit in the Flash memory, it's common to see 12bit or 14bit but when you choose a microcontroller the flash memory size is specified in 12bit or 14 bit words so you know exactly how much you could theoretically write in it. For example on this
PIC12F1571 you can see it has 1.75KB of flash memory and you see there it says 1KB x 14 bit so you can in theory write to it 1K of 14 bit instructions.
But when you write C code, you don't care about that, you have the same char, int, long,float etc that are 8bit, 16bit, 24bit etc the only situation where it may matter would be if you want to write to the flash. Only if you write straight assembly you may care about it.
The frequency matters mostly when you have a lot of stuff to be done within a time frame. If you only need to do a few things repeatedly, 1 Mhz may be enough, for other situations you may need more.
On PICs, most instructions take 4 ticks and a few take 2 ticks of an oscillator, so depending on your oscillator frequency you can estimate how much stuff you can do in a second or a time frame.. at 1 Mhz you'd have at best 250k instructions executed in a second
You can do a lot of stuff with 8bit microcontrollers. When you get to more complex stuff, you may want 32bit mcus which are more compiler friendly meaning they have more hardware functions optimized for C compilers and they have some improved functions like interrupt vectors with several levels. Those make for example running a very light operating system possible on such 32bit microcontrollers, whereas it would be very hard if not impossible to run an OS on a 8bit mcu.
Somewhere in between, chips like PIC24f have some dsp functionality or allow you to rearrange the pins the way you like it (there's some 8bit chips lately that also allow you to partially or fully rearrange the i/o pins)