You choose the target player or planeswalker when the ability is put onto the stack. You won't know how much damage will be dealt until the ability resolves.

Cragganwick Cremator deals damage equal to the discarded creature card's power as it exists in your graveyard.

If you have no cards in hand when Cragganwick Cremator's ability resolves, you don't discard anything.

If the target player or planeswalker is an illegal target by the time the ability tries to resolve, the ability won't resolve. You won't discard a card.