Which freewheel/cassette for this bike?
As you are starting from nothing, it doesn't matter whether you use a freewheel or a cassette. The 7 speed chains are the same regardless. I would look around for a secondhand wheel, as it will be much cheaper, and you'll want one that comes with cogs, tyre etc.
If you are lucky the chain isn't too worn, and it will just work. You may, perhaps, need to adjust the gears as the offset might be different