Finishing Garage Walls

There's nothing wrong with how your garage was built. Today's lumber is thinner and it's just a garage.
Studs are usually 16" apart on centers. Drywall is commonly sold in 4 x 8' sheets, just right for multiples of 16". Use a mat knife to score the drywall, snap it, and score the other side off. Position each piece to the middle of a stud except in corners. Use 1 1/2" drywall screws and a phillips driver bit for a power drill to drive them in (don't overdo it or they go in too far). It helps to have a helper hold the drywall but not impossible alone.
You don't need to add bracing but you could cut 14 1/2" ones and put them staggered across the walls, flat rather than angled. You will need 2 1/2" screws. I wouldn't bother.

so, that angled piece sticks out 2 inches from the studs, since it's nailed on on top of them. Do I cut some more 2 in thick pieces to add to the studs, like a picture frame? And put the drywall on top of that? Otherwise the drywall will bow out from the sides to the middle to compensate for the extra depth of the angled 2 x 4?

Sorta hard to picture, I know. hmm
Steph

Someone added a 2 x 4 across the studs?
I'd remove them.

Yeah. I think that's what they were using to control the walls from moving..

The sheathing and siding should keep walls from moving. Removing these 2x4's will not cause a problem.

Chuck