I recently became interested in shell-dwellers, too. I'm picking up some gold ocellatus from Dave at BFD. I was looking into N. Similis, but he was out. I don't have any experience with them yet, but here's what I've found from reading up on shell-dwellers so far:
1) Sand, particularly aragonite sand, may be best.
The typical "shell-dweller" varieties are split between opportunistic shell-dwellers (those that are primarily cave dwellers / spawners, but will use shells as an alternative), shell-spawners (those that use shells primarily for spawning only), and "true" shell-dwellers (those that will live and spawn in shells).
N. Similis are "true" shell-dwellers and will re-arrange the sand (although not as much as N. Multifasciatus, apparently) as part of claiming a shell / making a secure territory. I would say that sand (vs. bare bottom) is part of helping them feel secure enough to spawn.
I have heard that pool filter sand is sufficient for shell-dwellers, but other sites have recommended aragonite sand (which is a carbonate material) to help with pH and buffering. That should help to increase pH (and KH to help keep pH stable).
2) I would move the fry to a separate grow-out. Once the fry are born, the female tends to "eject" the male from the territory. Once the fry are large enough, they too are then "ejected" from the territory. I believe some shell-dwellers tend to engage in "communal parenting" behavior, but I'm not sure if N. Similis is one of those or not. I believe the fry are generally safe from the parents, but the other Similis in the tank may see them as competitors / food.
If focusing on breeding, some sites recommend using PVC elbows with end caps instead of shells. That way, you can take the elbow out of the water and remove the end cap to remove (i.e., "drain") the fry from the "shell". Another way is to place the shell (with the fry) on top of something within the growout tank (i.e., above the sand) - they will eventually see that they are higher up / off the floor of the tank and leave the shell on their own.
3) I think size of the grow-out would depend on number of fry and amount of filtration, etc. 10 gal seems okay to start with to me, but someone with more experience would know better.
4) Once free-swimming, fry should be large enough to eat baby brine shrimp. Prior to free-swimming, I believe the female will actually feed them. There is also some speculation that the female will arrange / bury the shell so that the tank currents filter microorganisms into the shell.
5) Not sure about rate of growth for fry, or adult size necessary to breed. I believe some varieties of shell-dwellers will breed before they reach their full adult size, but not sure.
6) Some shell dwellers spawn in pairs. N. Similis is a "harem style" spawner, where one male will spawn with multiple females. I have heard 1 male to 2-4 females is a good ratio. I have seen the guideline of each fish establishing a 6" x 6" "territory". So, for a 20L with a footprint of 30" x 12", that would be 10 "territories" (max). I'm hoping to setup a 20L with 2 males / 6-8 females for my gold ocellatus. We'll see how it goes
