Hello, Terhi, and welcome. You've found the right place to get some good advice for this sort of thing.
Since you're new at Photoshop, I've got a couple suggestions:
* While I understand the appeal of jumping right in to projects like this, when you finish this one I'd strongly recommend checking out
www.EclecticAcademy.com, where for $20/course you can get some excellent instructor-led training on
PS basics, like layers and tools and masks and channels, etc. Having learned Photoshop piecemeal myself, I see (now) how much better off I would have been to have gotten some basic training and skills nailed early in the game. I recommend EA not only because the classes are excellent and very reasonably priced, but since you're interacting with other students, you get the benefit of their experiences and questions (and the instructor's responses), plus a little "pressure" to keep up with the assignments / do the class work -- things that are easy to ignore or procrastinate on when trying to learn Photoshop from books.
* Secondly, the absolute best book available on retouching and restoration is
Photoshop Retouching and Restoration by Katrin Eismann. Check out the reviews at Amazon.com. They are just stellar and for good reason. Note: There are two edtions of this book. You want the first one (2001) based on
PS 6 = it will be less expensive than the 2003 version based on PS7 that explains tools you don't have in PS6. Check out half.com or other used book sources for the best prices.
On your technical questions for this image, I'll let some of the other RetouchPRO regulars give you some advice on those. I've already used up my 5 minutes!
Again, welcome. Hope you continue to learn a lot and have gobs of fun doing it.
~DannyR~