Hi Jamie 10 - I hope you do get a ticket for the one spot that's open to you! To answer your questions:
Lottery: Entries for the lottery take place outside the theatre - there's a table on the left of the theatre (if you're facing the theatre) with a person in charge. She's super nice and can tell you exactly what to do. The lottery opens 90 mins before show time and winners are drawn 55 minutes before curtain time. If you only need one ticket, I highly recommend entering for 2 anyways and once you enter, ask people in the crowd if anyone is looking for 1 ticket as well. Partner up with them and double your chances :)
As far as how many people show up, it's a complete roll of the dice. If it's nice weather, expect at least 30-40 people. With an 8pm curtain, more people have time to get to the lottery. But there's no way to estimate the crowd. Lottery is $29 cash only.
Cancellation Line: Outside the theatre is where the cancellation line forms. There is a sign posted that says Cancellation Line. I don't know how early the line starts as I've never tried it, but as I always say to friends...the earlier you get there, the closer to the front you will be. Definitely get there at least by the time the lottery opens. You can enter the lottery and move over to the cancellation line (they're next to each other).
As far as getting tickets from the cancellation line, it's also a roll of the dice. They may start calling people up right after the lottery, or possibly not until just before the show starts. Cancellation line allows you to pay in cash OR credit card. Keep in mind tickets in the cancel line are full-price.
Hope this is the info you were looking for. You should also keep an eye out on resell sites like Stubhub, although this is a popular show, so prices won't go super cheap before someone snatches up tickets.