The Public, Friends and Only Me settings should be self-explanatory. The Custom setting allows you to choose specific people or lists of people who can see your information. Alternately, you can choose to hide information from specific people or lists of people.
Try to strike a balance of having fun and getting connected with all your friends and family, while not becoming a target for stalkers and identity thieves.
For example, I recommend setting your address, birthday, phone number and email to Only Me. Your offline friends should have that information already. And you may not want all your "friends" to know that much about you.
As you're tweaking your profile information, you'll notice there's a View As button in the upper right hand corner. This feature allows you to test how your profile looks to friends and to the Public.