Bicycle Tutor

I got screwed on a bike from CL. Knowing nothing about bikes I thought it would be a good idea to fix it up myself. I already got new handlebars which I do not think I will have trouble with but I need to put a new a chain and crank set on the bike. Also I would like to make it a single speed (not fixed gear) any help? Am I butchering the terminology? Thanks!

By size, do you mean number of teeth, length of the crankarm, offset from the frame?
Teeth count will affect your gearing on a single. I'd recommend riding it in a couple gears as is to test different combinations. Force yourself to stay in one gear to see what works best all around. Singles are great, but you do give up flexibility on gearing.
Arm length is generally a function of your height. Comon lengths are 165-175. I think if you have knee trouble, you may want to tend shorter. Longer gives you more leverage which may be good for a single.
Offset's a whole other issue I doubt you were think about. But let us know.

Here's an article about converting to a fixed. Not exactly what you're doing, but many of the same issues apply:
http://www.cicle.org/cicle_content/pivot/entry.php?id=1572

The article DaveM posted touched on this, but you also need to determine what kind of rear dropouts the bike has. Here is a guide here: http://www.sheldonbrown.com/gloss_dr-z.html#dropout
If they are vertical, you would need something called a chain tensioner. Horizontal ones do not really need this, because one can pull the wheel back and get better tension on the chain.