I am trying to figure out how to work this MEP. Do I want to set pipe sizes to my tool palette? and if I do, how do I go about doing that.
Pipe sizes are controlled in 'style manager/piping objects/pipe part routing preference-prefernces tab.
From here you can define pipe sizes, pipe types and the fittings that match that system.
To choose what system you are drawing is all controlled on the properties pallette.
I think you are talking about the TOOL palette and not the PROPERTY palette. They are two different palettes. To add a size to the tool palette the easiest thing to do is right click and copy an existing size. Right click again in an empty space in the palette and select paste this time. You can click and drag the new tool anywhere in the palette that you want. Right click again on the new tool and this time select properties. This will bring up the property dialog for the tool you selected. Here you can change the name of the tool, the size of the pipe, the routing preference, the system definition ect. This is basically a carbon copy of the settings that you would select on the PROPERTY palette. The difference is that by setting them here in your tool you won't have to set them on the property palette. They will be preset by the tool. You can still make any changes on the property palette if you wish after you start the tool. The tool is just something to help you get started in selecting the right properties for your palette.
Hopefully this anwers your question.