I have used this project for beginning hs level. I have found the following methods to work well:
-5/8" drywall works better as it is thicker but you can make 1/2" work if you are more careful.
-I cut a scrap of old matboard or cardboard cut to size and glued on the back with white glue for support
-use a sponge and fingers to "scub" the paper off, being careful not to get too aggresive and ruin the surface
-I tell kids not to carve more than 1/2 of the thickness and
to take only a little off at a time keeping it damp as you work
-"outline" the shapes you want to keep with a utility knife and then carve AWAY from the design AND your hand!
-We use old wood carving v-groove tools and sculpting tools (the blue rounded ones they sell in Dick Blick)
-cracks and splits do happen but after the drywall dries you can open the crack up and pour a little white glue in it and hold it clamped shut till it sets
-I have kids use liquid watercolors watered down applied with a stiffer paintbrush-I have had some great results!...and we are recycling when we can and it is cheap to do on a limited budget!
I hope this info is of use to you.