The "R" is a lettered drill size. It's slightly larger than 21/64" and slightly smaller than 11/32" Here is a drill size chart that breaks all that down.
http://www.gearhob.com/eng/design/drill_eng.htm
Pipe threads are tapered threads so that they form a seal when tightened together, unlike bolt threads. You cannot use a bolt thread tap here as you've discovered.
In regards to the size... with the larger NPT sizes there is a closer correlation to the inside diameter size of the pipe. It gets screwy with the smaller sizes for some reason. In other words... for 1/8" NPT it won't correspond to any physical measurement being an actual 1/8"