Have fun! Personally I don't do our summer musical because I can't stand the hassles of all those kids!!
With that said, here are a few comments:
1) Huge number of kids is good. That means lots of ticket sales. It also means participation, future casts and crews, and future supporters. Occasionally you'll get new adults involved because of their child's participation.
You should have auditions AND you should cast as many as possible. You should have a show that has children chorus parts. Cast according to talent, but I think you may be surprised. It will probably be more evenly distributed than you think.
2) Hold auditions as close to the start of rehearsals as possible, but advertise now. Have perusal scripts available and a calendar of performance and rehearsal times.
3) See above and give their scripts after they have been cast.
4) Define "quality production". Get them onstage and knowing their lines and songs and you will have a successful production. Remember the purpose/mission, which I assume to be something like giving them opportunity to be in a play, having fun, making friends, and learning a bit about theatre ; and having an appreciation of theatre. Remember, too, your audience make-up, which will be parents, grandparents, siblings, and friends of the cast.
Other advice:
Have "kid wranglers"-- ie volunteers that are responsible for watching the kids off-stage and getting them on stage in time for their cue(s).
Have detailed information/rules/expectations written out. Use it as a contract that both the child and parent signs. This should cover behavior, theatre etiquette, rehearsals, performances, costumes, etc. I guarantee you will have to refer to it often.
Expect the unexpected. Remember these are people new to theatre and may not realize the time commitment. I can't tell you the number of times actors didn't show up because of family vacations and the parents didn't think it any big deal because their child knew their lines. No understanding of ensemble, etc.
For the record: I think you are nuts. My hat's off to you. I can't do it.