My kids did this when they were younger. In fact, I think my son (the older of kids) did the cruise twice.
As of approx 4 years ago, they give the kids black pirate bandannas. That's about it in terms of "costumes." The kids have to wear life vests throughout the experience so I'm not sure how well a home made costume would work. Don't recall seeing any kids dressed up during our experiences.
Also the "pirate cruise" is conducted from a modern pontoon boat. Didn't want you to have visions of a highly themed pirate ship cruising the lake.
It's basically a treasure hunt. Cast Members will have hidden pieces of a treasure map at several locations around the BoardWalk and even inside of the Epcot theme park. The map will take them to a general location and then the kids need to look around for a piece of the map. That piece will lead to another, and so on. Eventually they find a buried treasure chest--I think it's usually near the faux pirate ship which is part of Stormalong Bay at the Beach Club. The kids get to share the loot--mostly plastic beads, coins and other do-dads.
The Cast Members and other kids on the cruise can sort of make-or-break the experience. It's not going to be as much fun if there are some jerky kids on the cruise who sort of dominate the experience.
Overall I'd give it a thumbs-up. As long as the kids are comfortable being away from mom & dad for a couple hours, they should enjoy themselves. I don't know what Disney's age limits are but 12 is probably pushing it...at least based upon my experiences with 12 year olds. 10 and under is more appropriate, and the kids need to be prepared to get into the spirit of things. If a kid thinks the entire activity is silly, he will likely be bored throughout.
