- The cotton is to damp the excessive bass that is generated when you create too many (or more than necessary for your taste) holes.
- The easiest and safest way to drill the holes is by using a welder.
- No. Just drill 1 hole on each earcup, re-assemble everything and test it. If you like what you hear leave it as it is, if not disassemble it again and drill 1 more hole on each earcup and once again re-assemble everything and test it. If you test it and you hear that the bass is overpowered, then disassemble the headset and add some cotton on the inside of the earcup (as shown on the many images).
I've put a link above your comment. Its a video I made on how to mod it. It will simplify your life a lot :).