I wouldn't even begin to know where/when to make reservations. I don't know which park we'll be in when, and how do you know when you'll be hungry for dinner, based on your day.
1. How does one decide even if they know what they want?
2. Do you guys plan your whole day, based on reservations?
3. Can you make a reservation and not show up if it doesn't work?
Help.....and thanks again.
Welcome to the world of obsessive uber-planning. Sometimes it is done because people are obsessive compulsives about WDW, and other times it is done because it is just plain necessary. We can debate all we want about which is which.
But to get you started down the path of no return, here's how many people plan their WDW vacations, which will answer questions 1 and 2 above. First, you get an idea of what park you want to go to on each day of your trip. How do they know? Well, very few people here are first timers, so they have an idea of what they (and their group) want to see and do. Are you an early riser and plan to take advantage of morning Extra Magic Hours (when one park each day is open one hour early exclusively for WDW Resort guests (including the Dolphin))? If so, you go to the "Hours" section of the WDW website (or many other third party sources) to find out which park opens early each day. That would give you a good idea of where you will be each day. Conversely, if you do not plan to beat the roosters to the park, then you would be well advised to avoid the park that has the morning EMH each day. So, for example, if the Magic Kingdom has a.m. EMH on the Tuesday that you will be there, but you do not plan to make "Rope Drop" (the term used here to mean arriving well before the opening so that you are literally at the front of the pack when the Cast Members drop the ropes to let people in), then you probably want to skip the MK that day. That means that you have three other parks to chose from. Simply pick one and lock it into your schedule.
This same process works for late nights as well. Most nights, one of the parks will stay open extra late, just for WDW Resort guests. Do you want to close down a park at midnight (or later)? If so, pick that park and lock it into your schedule. You will find that once you start to do this, the puzzle sort of solves itself; e.g., "Must stay at Magic Kingdom until 1:00 a.m.. Hmmm. Next day, I probably won't be getting up at the crack of dawn. So I will head over to World Showcase at Epcot when it opens at 11:00 a.m. and therefore won't be behind the curve there. Seems like a light day. So the next day, we will attack Disney Studios for all its worth and get there at opening and stay all day..." Before you know it, you will have an itinerary that is more structured than you think. And once you do, you will know where you will be (pretty much) on any given day.
Of course, you do not have to do any of this. But the Disney veterans will tell you that it is better to have a plan (even if it is flexible) than to "wing it", especially in the summer. For example, as a first timer, you may not know that Toy Story Mania is the "it" ride right now at Disney Studios. Once you are at that park, you and your kids will want to ride it. But if you decide to have a leisurely breakfast and dawdle to the park and arrive at 10:30, there is little chance that you will ride it with less than a 70-80 minute wait. Will you get to ride it without advanced planning? Sure. But 80 minutes of your valuable time will be eaten up staring at the back of the head of the person in front of you. Many people who drop thousands of dollars on their vacations try to use their time more productively. Others don't mind at all. It's up to you.
As for your third question, there is no penatly for being a no-show unless you have pre-paid for a portion of your meal which you are required to do for certain reservations. (California Grill, Cinderella's Royal Table, Victoria and Albert's). But for the others, no-shows are common. Still, in this day of cell phones, I personally think that there is no reason for not finding a minute to call Disney Dining and cancelling if you know that you aren't going to make your reservation.
Hope this helps. And I hope I haven't scared you to death.
Edit to add: Was typing this as a couple of posts above came in, so sorry for some of the repetition.