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Do we have to install SharePoint locally for Office365 development using Visual Studio 2012? or, I just need an Office365 account? Is there an online tutorial for this?

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You don't need to install SharePoint locally for Office 365 app development.

Following are packages you should install along with Visual Studio 2012

  • Office Developer Tools for Visual Studio 2012
  • SharePoint Client Components
  • Windows Identity Foundation SDK
  • Windows Identity Foundation Extensions
  • Workflow Tools SDK and Workflow Client SDK

Check this article for details on developing apps for SharePoint Online

http://www.codeproject.com/Articles/690015/SharePoint-Online-App-Development-Part

Since most of the customization can be achieved client side I would recommend installing SharePoint Designer 2013.

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