Heres a pic of a thermostat that shows where to drill the holes when using a crossover. Can anyone explain why you drill the holes and what size drill to use?

ooops..........

Holes are usually around 3/16-1/4"

It just allows some water to continuously circulate. I have no t-stat in my crossover at all. The cooler the better for me provided my oil temp reaches 212.

I don't run any thermostats either. Water temp is around 130 and oil temp about 220-225.

It really isn't for water to circulate, it is so air will escape. Some water does get through, but it really allows the air in the block to purge through the holes so you aren't running anything dry.

I drilled mine...works great..with no therm ran way to cold

Actually you are partially right. But it does also keeps the the thermosatat from cycling. When it opens that cold water will hit it and make it close to fast. So it will sit there and open and close and open and close. The holes do help purge air but also regulate temp. I start with two 1/8th inch holes and go up from there. It will also regulate water pressure, depending on the holes, amount and size. My two cents..

It will also keep your tail pips from getting to hot waiting for the thermostat to open.

Yes drill the holes. Your exhaust will overheat before the thermostat will open! You will have to tune it in. Start with one 3 1/6 hole. Take a cordless drill out with you. Run the boat on the trailer and see how long it takes for the water to come out the exhaust tips. If that is ok Run the boat at top speed and make sure you dont have to much water pressure
or temp spike. If it does shut it down and remove the thermostat and drill one more hole. Try it all again. the most common that I have ended up with is three holes in a 180 deg
stat. Do you have alum heads? If so do not use a 160 stat. Try to stay with 180 deg. To keep the most heat you can.
The thermostat you have in your picture looks like a robert-shaw will not work to drill on. Use a napa or something with a
stock body and drill the holes in the body part straight down. Not on the moving part.

I drilled the body part on mine. Never crossed my mind to drill where they did.