Traditionally, graphite is used in this application because it is both heat resistant and self-lubricating. Because of the miniscule power these engines produce, even very light oils may be too viscous to allow operation so a piston that requires no (external) lubrication is highly desirable.
The ususal test for a piston cylinder test is to insert the piston and seal one end of the cylinder (e.g., with a finger) and the piston should not drop under the force of gravity. When the seal is broken, the piston should descend slowly. For a laminar engine, I would shoot for a piston about 0.001" smaller than the cylinder or, equivalently, a 0.0005" clearance.