To answer your questions:
1) A draft consists of all rookies, plus any players not currently owned by another team. When a player is cut by a team, he goes back into the draft pool. So, the '79 draft is all '79 rookies, plus guys cuts after 1978, plus any remaining players who were not on a team in 1978.
2) A team can never exceed 25 active keepers. "Active" means that they appear in the WIS database for the current year. Sometimes players in real life miss an entire season, and do not appear in the WIS database for that year. Owners place these players on Injury Reserve (IR) for that season, and retain the rights to them. For example, NYY has a pitcher, Fernando Arroyo on IR in 1979... after the draft, the NYY team will have 25 active players, plus Arroyo on IR. Entering 1980, the team technically has 26 players, but cannot keep all of them if none retire--Arroyo would be considered active in 1980 (assuming he played that year IRL), so the team would have to make a cut to get back down to 25 active keepers. Teams generally cut their worst players after a season, and are alotted draft picks to gt back up to 25 active players. We use a 15-player minimum active keeper list, assuming that no more than ten players from a team retire/go to IR after a given year, which is an unlikely occurence.
3) When a player retires, he will never appear again in the league. All players in a given season for us are in the same season--1979 is our next season. When we go to 1980, a guy who retired after 1979 IRL cannot be in the league, because all players will be from 1980, and he doesn't have a 1980 season.
Your profile is new on this site, and there are some things you should be aware of before opting to join a progressive league. Owners are generally expected to stay for several seasons. If you decide to quit, there's not much I can do, but other people in the league may notice if a new owner comes in, half-***** for a year, and leaves. Progressive leagues have a communal aspect to them, and doing a poor job in one progressive can give your profile name a bad reputation, which can hinder you in the future if you want to play progressives more seriously later on. I do not want to exclude you because you haven't been on the site all that long, but joining a progressive is certainly more of an obligation than signing up for a standard theme league.
In a progressive, you have to submit keeper lists on a yearly basis. This is not always fun, as you may be busy in real life. However, you still have to do it. You have to put guys in your rotation/lineup that are so bad you cry a little on the inside when giving them a start. You need to develop a PLAN & execute it in order to succeed; competition is fierce & long-term strategy is a vital aspect of it. You will find that pitchers are worth their weight in gold, and will quickly realize how difficult it is to build a rotation from scratch... and I don't mean a "good" rotation, I mean a rotation. The teams up for grabs are severely understaffed in the pitching department.
Frankly speaking, anyone who takes these teams has their back against the wall, as the teams are brutally bad, which is why they're being given the top 3 picks in 1980. You will struggle to draft enough IP and PA to get through the season. The team will be in need of constant managerial decisions regarding keeping fatigued players off the field. You may only win 60 or 70 games several seasons in a row. It's easy to get frustrated and quit, but you have to realize that abandoning it means somebody else has to pay & take over the reins, and can sometimes give you a poor reputation.
Point is--it's a much more in-depth experience than playing a standard one-season league, and you are generally expected to play for several seasons. If you are just wanting to "try one out," I respectfully ask you not to join this league, because I need someone to take them over for awhile. If you understand that it requires constant input & will be very difficult, feel free to join. Please take awhile and think it over.