I hope you had a refreshing sleep!
As for the format of the index, it is UTF-8 without BOM. In case of the html files, you can use both, but I would stick to UTF-8 without BOM.
Before you start making the files aa ab and so on, try to make a small dictionary with just one html in order to check whether it is working. Make sure that you have an epub with the corresponding words so that you can check the dictionary function easily.