27x1-3/8 is the stock size for this bike. It is currently running 27x1-1/4. When I measure for tire width on the frame and forks should I drop down 2 to 4 mm to guesstimate where the wide point on a 700c would wind up? How much clearance minimum between tire sidewall and frame/fork?

4 mm would be reasonable. the concept is this, a 42 tire will in theory be a 42 mm circle in the cross section, this is an approximate as it does not take into account the added rubber for wear. Your original tires were 35 mm wide. There are some other factors too, a rim that is wider or narrower will modify the ultimate tire width.

As to the amount of side clearance, you can also possibly slide the rear wheel back a bit after to gain more capacity. 4 mm on each side I would be comfortable with. You might mark the widest tire region at the chain stays now, move back 4 mm and remove the wheel, measure the inside width, subtract 8 mm and you would have a reasonable guess as to the width of tire you could run with a 700c.

No. These terms, 26", 27", 28", are nominal sizes and don't really have any bearing on anything. Note that the most common "28 inch" size is the same as 700c and is actually a smaller rim than a 27" rim. In the English speaking world they used to call tubular tires 27" or 28" wheels, or more generally "sprints." The original sales receipt for my 1954 Alvin Drysdale specified "27 x 1 1/4 sprinter tires" on "Vanzone rims" (sic). That is, Vianzone wooden rims with tubular tires.

What we know of as "27 inch" was a proprietary size introduced by Dunlop in the 30's in hopes of cornering the market for high end clincher tires.

I'm not sure when 622mm clincher rims and tires became available. By the late 40's for sure.

Two of my bikes are now running Schwalbe Silentos 700c. The Salsa Vaya touring bike came with 700c 40mm and I liked them so well I put a set on my Giant Hybrid. I replaced the kenda 700c38mm (measured 35mm) with Silento 35mm (measured 35mm). The Vaya soaks up lots of bad roads.

I think that you must be referring to the Michelin Hi-Lite Tour, a folding 1-3/8" tire that measured about 33mm wide. I have raced cyclocross on those!

That tire's tread pattern and actual sizing is accurately reflected in the much-heavier, current 27x1-1/4" World Tour tire, which is gum-walled with thick rubber and weighs the proverbial "ton".