the flywheel has not been off in many years. it appears to be attached and spinning properly.
 

update- i dumped out the gas that was in the tank and put in fresh. i also removed the plug and exhaust and pushed the bike around my yard. Last night it wouldn't start but today after a few tries and the bike and me moaning and groaning it eventually started It took awhile for it to quit sputtering and finally idle nicely but it did. And it runs great! Thanks to all for the advice!
Question- why does the overflow from the carb drain into the crankcase?
And what grade gas is best for these bikes?

Great news, well done. 

I don't think that the carb overflow does drain into the crank case - pipe should be routed toward the swing arm. Also, pretty sure that there's no aperture in the crank case, other than the venting hole (which should have its own, much wider, hose coming out of it), for the carb overflow tube to go into.

The lower the E number of the petrol, the better. Best is ethanol free (E0), but this is becoming increasingly difficult to find. Next best is E5 - if you know that the bike is going to be stood up for a while, then best to drain this out of the system.

If i said overflow into the crankcase [not sure i said that but if was said] the meaning would be if the carb has a fault in the float valve & fuel has been left turned on then there's a very real pissibility for the carb to slowly fill & let fuel into the motor by going straight down the spout & past the reed valve in your case.
Nothing to do with the external overflow/breather pipe from the bowl.
Nothing to do with faulty reed valve as they don't fully seal.
Not an uncommon problem for bikes parked up for a long time.
Also common for the oil tank to slowly find its way past the pump & into the crankcase over time.
Crankcase is where it all happens before being sent up top to get ignited.
I'm not reffering to where the transmission is situated as the two compartments are totaly separated & individualy sealed.
Sorry just thought i'd bore you while waiting for my dinner--& i'm hungry & mind's wandering.
Be proud of yourself as you finaly got it sorted & running by yourself. Top marks.

Sorry GR8Uncleal, i didn't see your post when i started typing.
Must've started typing about the same minute haha, but i was slower & woffled on.
Great he has it running at last. Cheers.

Congratulations! 

I like that new word “pissibilty”! Explains exactly what happens when the fuel supply valve is left on RT325!

Haha I should proof read better shouldn't i, but then again it fits lol. At least I know ya reading my post--better than i am. Cheers.

thanks for the info and the advice!