Originally Posted by RudyBoy
That's a tough one to cover in a thread - I have one client who builds guitars, but has me set them up for him!
In general, we're refering to how the truss rod is adjusted, how high/low the saddle is adjusted, and what kind of clearance you have at the nut. For electrics we also look at how the pickups are balanced with each other, and across the fingerboard. The truss rod is perhaps the most poorly understood feature on a guitar, and is rarely set properly by most users. It is often used by the novice to adjust the "action", commonly defined as the height of the strings as measured at the 12th fret. What it really does is control the shape of the fingerboard: too much curvature and barre chords are difficult to play in the middle positions, and if too flat or back-bowed you might/will get fret buzz. You want the neck to be "just right" for your style of playing, THEN adjust the action height with the saddle. The nut also needs to be "just right" and typically requires special files to adjust correctly. File too deeply and you just ruined the nut and need to start over with a new one!
The goal is finding the best setup for YOU. If you have a light touch and are playing finger-style jazz, you can get away with light strings, and a low action. If you are flat-picking some loud bluegrass, then you'll probably be using heavier strings and a higher action. Most new players should probably start somewhere in the middle, and evolve from there.
In addition to understanding the process, you often need special tools. Most players do not have the resources to get this dialed in right - the best $65 spent on your guitar would be for you to find a good guitar tech who knows how to do a good setup for you. And to complicate things a bit, changing string tensions, and changes in humidity can change the guitar's shape a bit, causing changes in the setup. These effects vary depending on the guitar. Once you have a good setup dialed in, try to stay with the same strings, and try to control the humidity of the room the guitar lives in. Case humidifiers are also advised, depending on your climate, time of year, and the kind of guitar - ask your locally-owned guitar store for more info (as mentioned in a previous thread, most big-box salespersons will be of no help).