What is difference between regular, slim and super slim version? Which one to buy?
You want the Slim. Cool, quiet, highly reliable.
The super slim is okay too but it definitely had cheaper build quality. Some people don't like the top loading drive either.
The original (fat) PS3s have PS2 backwards compatibility (not on 40GB model), SACD support, flash card reader (60GB only). They're the Cadillac model. However, they're much more prone to failure (YLOD), run hotter, and consume more electricity. They're also noisy and can't bitstream HD audio.
Should I buy the 500GB or 12GB version? Can we install and play games on the PS3?
Some games install, some don't. Most however have a cache file on the hard drive. The 500GB is probably the better bet. 12GB doesn't leave much space for downloadable games. However, you can upgrade with a bigger drive at any time. They take standard 2.5'' SATA laptop hard drives and SSDs.
Can PS3 access internet via WiFi or I need a LAN cable?
All PS3s have built in 802.11g WiFi, which maxes out at 54mbps. They also all have gigabit LAN.
How does the PS3 connect to a TV? HDMI or something else?
They all have an HDMI port as well as analogue outputs. Component cables are sold separately. You can also output to composite if you have an old standard def TV.
Audio can be outputted either through analogue RCA, HDMI, or TOSLINK. You can use analogue or optical audio in conjunction with HDMI video.
I am mainly buying PS3 to play god of war, so if some one can list down other must have ps3 exclusives like uncharted/infamous series, I would really appreciate it.
Most of the best exclusives have been covered in the above post.
Other games worth checking out
-Bioshock series (1, 2, and Infinite)
-Flower
-Okami HD
-Mirror's Edge
-Ratchet & Clank Future (Tools of Destruction, Quest for Booty, and A Crack In Time)
-Fallouts 3 and New Vegas
-Assassin's Creed Series
-Ni No Kuni: Wrath of the White Witch
-Valkyria Chronicles
-Bayontta (PS3 version is the worst one but it's still a good game