Vacuum DB

Being a relative newcomer to PostgreSQL, can someone give me quick tour of
the vacuum function. The application that I built uses PostgreSQL as a
statistics database (running on RedHat 6.2). It will typically make
10000-20000 SQL updates/inserts per hour. This is fine at first, but as the
day progresses, the updates start falling behind, and the CPU usage by the
postmaster process starts heading toward 70-80%. When I do a vacuum, the
updates speed up dramatically, and the cpu usage goes back down to about
10%.

The questions are:
Is there a general rule on how often to run a Vacuum?
Is there an Auto Vacuum setting to have the postmaster to this
automatically?
Is there a better approach to keeping this situation from happening (like
bundling many updates into a single transaction)?

Any info would be appreciated.

John Sokel