Sounds like you've got a great support team, Lady Neon! I've never written out a proper birth plan either - just sort of talked things over with my midwife and made sure we were on the same page about the essentials.
An episiotomy is a cut made in your perineum as the baby is about to be born to allow him/her to come more quickly if he/she is in distress, or if the doctor thinks that you will tear really badly, and wants to try to minimize that by making a controlled cut instead. The second reason is generally considered a bad idea these days - usually tearing is better, but you can discuss the pros and cons with your midwife/ob.