URDF only works with mesh files. You can use STL or DAE, that is the only two that are supported that I am aware of.
I (and probably most people) prefer DAE because you can output the color of your model from your mesh software. STL doesn't support color so you have to add that information in the URDF and even then I don't think you can have multiple colors on one object.
If you are making real/important changes to the part I would suggest modeling it in SolidWorks and exporting. If you are just simplifying the part by removing unimportant features, I would recommend working with the existing STL.
I prefer using Blender for modifying meshes. Blender is free, very extensive, cross platform, portable, and awesome - there can be a bit of a learning curve but there are tons of video tutorials available. The main feature I use for what you're talking about is the decimate modifier. I just leave all those unimportant features and decimate the whole model - its like lowering the resolution of it.
You can also use Blender to paint/color your parts and export DAE so you don't have to add color information in your URDF.
EDIT:
One last thing, Solidworks exports STL, but like I said that doesn't carry color along with it. Solidworks does NOT export .dae. Just looking at Blender and Solidworks I notice that Solidworks can export .wrl and Blender can import .wrl. And .wrl does support color. So, you might/should be able to export .wrl from Solidworks, import it into Blender, then export the .dae from Blender ... that way you would have the color that you set in Solidworks.
