Tier level is the grade used to compare how strong a character is...there's a list around there somewhere....

Character sheets and all for arena RPs are as what the tin says, a sheet for the character you used. Essentially to avoid you pulling off new power and stuff from your ass in the middle of the fight. (A bit simplification here, but oh well)

How the battle is done depends on what you decide with your partner or the thread starter, so, you could do what you just said while another time you and the other guy decide to do a dice based duel.