Wood grades as mentioned are based on defects in the wood...be it knotts, blemishes, stains or whatever...clear wood is considered defect free...that is, an almost perfect piece of wood.
For constructing a cabinet for a tank which will be in easy view within your residence...then you should chose the clearest possible wood you can. Unless you want a specific look. My preference with wood is Red Oak. But my wife likes the knotty pine look. So the new cabinet I made for my 45 was out of a semi clear pine with knotts. I then stained it with Minwax Pastels, Winter White, and polyurethaned it with Helmsman Indoor/outdoor spar urethane. Two coats brushed on...sanded lightly between the two coats with 220 (wont use the the spar urethane for that sort of stuff anymore).
As for sanding between stain coats...that is a personal preferance. I do not do that. As for staining multiple levels of stain...you use more then one coat of stain to enrich the look of the piece you are working with. Using a darker stain like say Dark Red Mahogany..to get a really deep, dark finish, one would use a couple of coats.
As for top coating...some people use the spray on that was mentioned above. I do not. I believe you get better, even coverage with applying the poly with a brush. Apply your coats thin with a good quality brush. Sand very lightly with 220 grit or finer between the coats, and make sure you wipe the piece down and vacume it after each sanding. Want a lusterous (spelling?) glowing type of look...use semi-gloss or gloss polyurethane and after the final coat rub it down with steel wool (00), and then you could give it a hand wax rubdown. That's beauty there.
Back to the wood itself. They mentioned above to check for warping, splitting, whatever. Unless you have access to a properly equipped wood shop, then you must stick with very near perfect wood. Without a planer, planer/jointer, it is virtually impossible to correct a warp.
There is nothing finer then finishing your piece...wiping your hands and simply admiring the work you did. It is a wonderful and proud feeling.