Regular salt water is fine. An over flow filter is a good idea for both oxygenation and water filtering. Depending upon the season, they will mate and hatch out eggs (you will likely get some with eggs) but I have never knowingly had any young survive (sometimes I find small ones that I don't think came in the shipment but I can't be sure). Because I can't seem to grow them out, now I feed the ones with eggs first to provide the extra nutrition to the dwarf octos. The ones I originally put in Ocatane's tank have disappeared but I don't know if she snagged them or if they escaped via the overflow to the fuge.
You can expect a die-off during the first week (sometimes it is significant, others not too bad and I have not come up with a formula for why). Be sure to remove the dead daily and change out a quantity of water. After the first week you should see little to no further die-off. I completely change out my water with each shipment (this does not account for the die-off and seems to help some).
If you run an oversized open filter with overflow (I keep a nylon filter bag over the intake) you should easily be able to keep 300-400. I keep 250 in a 10 gallon. If you want to experiment, you can section off a small area with one of those nylon/plastic tank dividers and put in a couple pieces of LR.The LR does seem to keep that tank water healthier. The one I have set up that way has the intake for the filter in the mini-sump so hatchling fry would not have much of a chance but without the intake and adults there may be an opportunity to grow out a few but getting them out of the mini-sump is difficult, at best.