There are a couple different ways to pick your words. A friend of mine uses words from her spelling list. Personally, I test all students at the beginning of the year using the Dolch high frequency list (available online and done for each grade) I start by selecting a group of 10-12 words that seemed to be causing the most trouble. I then added a couple of words each week based on a theme we were doing in class or noted struggles in the class. For example: If we are studying contractions I would put two of the more common ones on the wall. If I notice in their daily work that they are repeatedly spelling "first" wrong then I will put it on the word wall. I teach my kids that they look to the word wall first when they need help. They also have their own mini word walls that they can turn to. Any word spelled incorrectly on their spelling test is added to their personal word wall.
I also have a DOOZIE line. I just used those chain links and clothes pins. The line always has 5 words on it. These words are bigger and/or may not be spelled how they look...tricky words.
When reviewing their work I use different coloured ink. If a word is underlined in Green they know it was displayed in the room and they need to fix it.
I interact with the word wall a lot. I personally don't think it is enough to display them. I put all the words on flash cards and use them in the writing center, games center and we review them during guided reading in some groups.
Hope this helps!