There are probably as many answers to your questions as there are people on this forum!
I haven't done a huge project like this (only wedding albums or baby's first year kind of things...) BUT, if I was going to do one I would decide first what photos to use and how to highlight events. I would go in chronological order, but you don't have to...you could group by birthday celebrations, family reunions, yearly vacations, or whatever...
Then I would work on deciding on colors/moods and select collections. If I was going to do a book on girl scouts, I would probably choose a few collections that coordinate, but for a family album, I think I would just use whatever fit the nature of the specific page(s).
It would probably easier to jot down a general outline for what you want to include (including any journaling or dates/locations that you might want to include on the pages) -- this will help you determine how many pages will be bound and so that you account for the cover, title page and know how much you will have to spend to have it printed. You could simply use a notebook to gather all of your thoughts in one place (or if you are a real techy, then you could create a digital file).
Then I would absolutely get myself some layout templates because it will make your job SO much faster and easier.
As far as using chapters or dividers, that's really up to you. I probably wouldn't, but that doesn't mean anything. It's YOUR book, so do it however it makes you happy.
This is a big project, but when you are finished you will have an amazing keepsake that will be treasured.
Have fun! (And remember if you get stuck or need inspiration along the way, a Scrap Girl is ready to help.)