Capitals are less easy to read, but could be used for main section headings (possibly centred).
If you decide to use different point sizes, you will need at least two points difference between sizes.
Sans serif headings can be effective over roman text.
There should be a little more space before the heading than there is between the heading and the text.
A typical arrangement might be:
1.1.1 Third level. Text continues on same line as heading.