In most skillets, the hot spot will be in the very center, and it will be about as wide as the flame. Basically, the flame spreader needs to be larger than than, but not by much. With a small skillet, I would think that a standard soup can lid was as big as we ever used. With a large skillet, it might be larger.
If you used a flame spreader that was far too large, it would be very counterproductive. If you spread the flame out to the outside of the skillet, you might waste most of your heat.
No, it is not absolutely necessary to punch holes in the perimeter. That's just the way that we made them 35 years ago, and they seemed to work OK. Besides, punching holes in it will lighten the spreader.
–B.G.–