I read various posts about using cleaned hoods, etc, but got a little confused at which method would work best for me. Would Jordi's Clean Custom Neighborhood Tutorial be the best approach?
As I recall, that thread has a whole bunch of information, but yes, it's a good place to start. You will need clean templates in order to avoid getting pre-made townies, NPCs and bin families in your neighbourhood.
Also, can I play the hood without any townies or do I still have to create some (even if they are custom) for the hood to function properly?
Depends on what you mean by "townies". Townies as in simply unplayable sims (Benjamin Long, Ivy Copur & Company) you do not need at all, and with notownierespawn, you won't get any, either. Avoid building apartments (if you have AL) if you don't want any apartment townies.
What's commonly refered to as "NPCs" or "Service NPCs" is a bit different. These are the unplayables which perform a specific function, such as cashiers, firemen, maids, paper 12s, etc. Some of these you can easily avoid by having the antiredundancy hack in and then simply not doing the action required for them to be spawned. Don't ever hire a maid/gardener/call the social services/whatever, and none will be spawned. Don't place cash registers, bars, etc on community lots. If you want some of these, though, there are ways to modify their clothing so they fit your medieval theme.
Some NPCs WILL spawn on their own, but even most of those can be avoided. Use twojeffs' visitor controller to avoid the matchmaker and the Garden Club, and I think also the Charlatan. The paperkid can be avoided by getting some buyable newspapers and putting three in a hidden location on every lot, but one might still spawn from the hobby magazine popups. I don't think there's any way to avoid the mailcarrier, unless the visitor controller can ban those too. Also, if your sims engage in hobbies, the hobby leader sims will spawn at some point.
Also, nostrayrespawn for, well, no strays.
Good luck.