Hi Eric... and welcome to PlanetChristmas!
I don't use plywood for my cutouts, but I used to use Masonite (hardboard) years and years ago. I've switched over to using Coroplast instead. With that said, what I used to use in sealing the Masonite was a good latex exterior paint. Normally, I would buy a white, exterior, latex paint and give the board a minimum of 2 coats. You have to be VERY thorough with the edges... since that is where most of your moisture would be soaked into the board.
When buying paint that you'll be using for your characters, I would suggest getting a fairly good quality exterior latex paint that is FLAT. The reason I suggest using a FLAT latex paint is that if you get a paint that has a sheen to it you will get nothing but a bunch of reflections from your flood lights when you turn them on. Trust me on this... I made that rookie mistake my very first display about 30 years ago. I had to purchase all new paint and repaint Santa. Fortunately, I had only done the one character.
As far as mixing paints. What I do is purchase black, white, red, blue, yellow, brown and green. From those colors you can mix any shades of those that you like. I know... you can mix any color from the three primary colors... but I buy the others and use them as a basis for mixing different shades of those colors. I also save my small plastic peanut butter jars for mixing new colors. You can also buy empty paint cans and lids at your hardware stores if you'd rather stick to using paint cans.
And finally... make sure you post pictures when you get finished! Hope this helps!