If your opponent's serve is short, then the ball is dead immediately and the rally is over.
You don't have a choice to return a short serve.
This is unlike a serve that's going long, which you can choose to play before it goes long, provided you do so before it hits the back wall and becomes a dead ball.
This is because the ball is still in play until ...
The following is a rough, elementary answer. It disregards subtleties such as pronation which are relevant to high level play.
The fundamental mechanic behind a tennis serve is that of throwing a ball. In a basic flat serve, your motion is that of throwing a ball forward. In a kick serve, the motion (for a right-handed player) is of throwing a ball to the ...
No, you can't let it bounce.
No, you don't have to release it from the hand.
World Squash rules (effective at January 2019) state in section 5 The Serve,
5.7 A serve is good, if:
5.7.1 the server drops or throws the ball from a hand or racket and strikes it correctly on a first or further attempt before it touches anything else;
"Anything else" ...