5 and 7 are great ages to go. The kids will be tall enough to ride almost everything and old enough that you won't have to drag clothes/diapers and a million other things into the parks that toddlers and babies require. Don't get me wrong, taking little ones is a blast too, but waiting until age 5 definitely has some perks, especially for a possibly once in a lifetime trip. Anything in the 1-2 week range would probably work well depending on what you can afford and how much time vacation time you're able to take. I'd recommend at least 2 days at MK and 1 at each of the other parks. Do more if you're able and don't forget some down time as well, especially if it will be swimming weather.
As for hotels, really it depends on what you can afford and what amenities are important to you. The value resorts are the cheapest (unless you go for a suite, which can be as or more expensive than some of the moderate and deluxe resorts). Art of Animation and Pop Century have gondola transportation to HS and Epcot. For MK and AK it's only bus. The other values only have buses. They all have kid friendly theming and pools but no water slides or hot tubs. There are no table service restaurants, but do have quick service locations with lots of options.
The moderates (with the exception of Port Orleans French Quarter) are all large and spread out. Excluding FQ, the mods all have multiple bus stops which can be good and bad. If you're at a later stop, the bus may fill up before your stop. The good thing about multiple stops is your room will be pretty close to a bus stop and you can take the bus to get around your resort if you wish. Moderate resorts (except FQ which only has QS) have a TS restaurant and QS options, along with nicely themed pools and kids splash pads, water slides, and hot tubs. Port Orleans has boat transportation to Disney Springs. Caribbean Beach offers the gondolas for HS and Epcot. All other transport is by bus.
The deluxe resorts are the most expensive and generally physically closer to one or more of the parks. Some have boat or monorail transportation to one or more parks and a couple are walking to distance to a park. All have pools with water slides and hot tubs, most have a cool kids splash pad, and all have TS and QS options.
There are also the campsites and the cabins at Fort Wilderness. The campsites offer tent, motor home, and RV camping. (Disney does not rent any of these out, just the campsites!) The cabins are cute and have a kitchen and living room along with a bedroom with a queen bed and a set of bunkbeds. Fort Wilderness is very spread out, although there are internal buses that will take you around the resort. There are TS and QS options, a dinner show, playgrounds, pools (one with a slide), horses, various recreational activities, and boat transportation to MK.
The best resort is the one fits your budget and meets your needs. Personally, we don't stay at values as water slides and hot tubs are important aspects of vacation to us. A lot of people don't like large, spread out resorts, but we love Caribbean Beach and Saratoga Springs because they are spread out and more relaxing to us.
If you will be doing a lot of character meals, the dining plan may be beneficial as the character meals are pricey so it makes it easier to hit the daily price of the
ddp. We found them to be a great way to meet some characters without taking extra time at the parks or using up more FPs for the character lines. In general, the food won't be as good as other restaurants, but we feel it's still worth it with kids as you can knock out meeting a lot of characters while you eat.
Must dos are going to vary depending on your interests and finances. Dessert parties are a fun way to relax at the end of the night, eat some desserts, and have reserved viewing for the fireworks, but they are very expensive. Lots of princess-obsessed little girls love getting makeovers at BBB ($$) or doing the Perfectly Princess tea experience ($$$) where Aurora makes an appearance. There's also the Wonderland Tea Party at the Grand Floridian with Alice and the Mad Hatter where kids make crafts, sip juice and have a cupcake. My kids love the Hoop Dee Doo dinner show, as well as eating at Cinderella's Royal Table and Sci Fi (sit in booths that look like cars and watch clips of old movies drive-in style). They also love the water parks and pools.
. A Disney trip is a great excuse to start upping your exercise (if you don't already) to get everyone fit and ready for lots and lots of walking. 
