Ok basicly even the Standart version would be enough for your game as you don't want any physiks or stuff.
But I would go with the Extra (at least), with Extra you also get the terrain function which might be usefull for a good looking RPG.

About your programming question:
All of that stuff would go into some .wdl file.
Best is to have one script for each "category" so to speak.
Like on .wdl file for the NPC's and another for level objects, such as LOD for level objects (if needed) or the triggers for switching the area or entering a battle.
A battle trigger (for example) would be an entity action which checks its distance to the player and if he is near enough, teleports him into the battle or do whatever.
So you would assign this action to an entity in the WED.

Hope that helped you a bit.