(1/4 inch Luan Plywood Installation)
When you install plywood over drywall as an interior finish ensure that the plywood has been secured so there is no movement. Once this step has been completed, you'll need a foam underlayment. This will allow for the sound insulation as well as to expand and contract as normal depending on temperture conditions. If your sheet vinyl has the backing on it, ( some do) then of course you don t need it, as some vinyl may come pre-installed with the foam backing already attached. If you are looking at using the plywood paneling to hold in shelving you might want to go with a sturdy grade over 1/4 inch, to 1/2 inch. Although the standard variety is 1/4 plywood.
Things to Keep in Mind : Drywall will be required for Fire Codes
Best Panels to Use of Drywall Covering Instead of Plywood :FRP or ABS panels | The benefits of using FRP Panels or ABS panels is that they are strong and easy to clean.
FRP Panels which actually stands for Fiberglass Reinforced Polyester, is actually used in office buildings, and retail space, it is quite hardy for any project that you might have in mind for covering over drywall with plywood. You can tell its FRP Paneling when you see it, as it is white with a dimpled texturing.
ABS Panels are Acrylonitrile-Butadine-Styrene, is a tough plastic sheet they make many things out of, it can be scratched easier than FRP.
ABS panels and FRP Panels are actually finished and easy to install, and are used for many heavy duty commercial interiors that get regular abuse. So if you are looking at covering drywall, this would be the better choice over plywood depending on the application. Of course, if you are working a garage or machine shop then 1/4 inch plywood might be the better solution.
Technical Term: "Wainscoting" for applying Plywood Paneling over Drywall
Luan Plywood - Information
Working With Plywood