The pellets will work fine, but they are probably not the best or most affordable option, especially in our region (tons of fruitwood pruning everywhere).
I keep chips (coin sized) and chunks (golf ball to baseball sized) on hand of several different woods. The key is that you want the wood to fully combust, producing a thin, faintly visible blue smoke. The way I do it, and others please chime in, is get the grill & charcoal just about up to temp & then put a palmful of chips on top of my coals, usually in a little clump. If I am using chunks I may put them in a little earlier so they have time to warm up. Once the initial billow of smoke from the cold chips settles I will put the food on. The thick smoke often comes back for a brief minute or two, then settles to thin, faintly visible and oh so sweet smelling blue smoke.
Others can provide a better education on the science, but as I understand it thin blue indicates the wood is fully combusting, while thick billowy means that uncombusted wood particles are suspended in the smoke and can potentially create a bitter, acrid flavor... Definitely not "Good Eats," as Alton Brown would say. Also the thin blue stuff is reported to have antimicrobial properties while the thick white stuff can potentially be more carcinogenic.
Again, this is my understanding. Someone please correct me if my understanding is off. BBQBrethren helped me with a ton of stuff before I found this place, and while this is a great place for all things Weber, the brethren may be the authoritative source on knowledge on recipes, tips, techniques, etc.