I'm inclined to put the newest version of macOS I can get my hands on, onto this IIci. But what version is the best for this hardware? It had 7.0.1 on it, I have, thanks to FloppyEmu, that version, 7.1.3, and 7.5.1 if I recall correctly. I'm guessing I need a PPC to run 8 or newer? But anyways, I don't know of anywhere that has a breakdown of the differences between the versions. I've never run anything older than OS X really, aside from the 7.0.1 that came preloaded on my SE.
You should have about 8MB RAM (or more) for a comfortable experience.
As with any question of «best», you need first to define what «good» is. What are your criteria?
It's a bit like asking what the best fruit is (the answer, of course, is the orange).
I have a fondness for System 7.1 but you need to determine this for yourself.
You can work it out like this:
1. Is there any software (e.g. extensions) that limits you? For example, if you want to run software that requires System 7, then your lowest requirement is System 7.
2. Look at what each version of the SSW (system software) offers new:
• do you want colour icons? If yes, then your lowest requirement is System 7.
• do you want AppleScript, WorldScript etc.? If yes, then your lowest requirement is System 7.1.
• do you want access to AppleShare volumes that are larger than 2GB? If yes, then your lowest requirement is System 7.1.
• do you want access to 4GB drives? If yes, then your lowest requirement is System 7.5.
• I don't know what Mac OS 7.6.1 brings to the party. I had gone directly from System 7.5.5 to mac OS 8.1.
3. Do you want it as fast as it can be without hardware upgrades and your software supports it? If yes, then choose System 6.0.
4. There are instructions for modifying a install of Mac OS 8.1 to install it onto the IIfx and I have this running on mine. It runs well (I have 32MB RAM) and it gives me access to HFS+. Whether it will run well on a 25MHz 68030 is another matter. And you have to find the instructions. The modified install of Mac OS 8.1 for the IIfx is up on the Mac Garden.
If you have a large enough drive, put all of the versions of the SSW on and see for yourself.