Setting up a guitar is one of the most important things that you can do. This will make your instrument play and sound better. Setting up a guitar, or any fretted stringed instrument, requires many interrelated adjustments. Acoustic and electric guitars have to be set up in the same way, but using slightly different methods.
A lot of people want their guitar to be easy to play. The basic idea is to get the strings as close to the frets as possible. The distance of the strings from the frets is referred to as the action of the guitar. When the strings are close to the frets the guitar is said to have a low action and as a result you don't have to press very hard on the strings to fret them. This means that the guitar is easy to play for learners. It is also faster for more experienced players.
A low action can only be achieved if the frets are level and the neck has the correct bend along its length. You can check the bend in the neck simply by sighting along its length. If it is set up correctly you should see a slight concave bend as you look down it. You need to be careful to sight along the top of the frets, rather than the plastic binding. If your neck is absolutely flat or bends the other way, you need to adjust the truss rod. Truss rod adjustment takes some skill, and if done incorrectly can ruin the neck of the guitar. If you are unsure about this you should get and experienced guitar technician to do it.
If the frets aren't level then you would also need to seek professional help as the only way to deal with this is to have the frets sanded down with a very flat grinding stone. Fortunately, the majority of guitars rarely need this to be done. The main time to consider this is if the guitar has been played for many years and the frets are worn out. You will be able to identify this easily as the frets will have grooves in them, where they have been fretted over the years.
Assuming the neck has the correct bend and the frets are flat and even, you can go on to adjust the action. Even if the above is not correctly set, you may still benefit by changing the action slightly.
Adjusting guitar action is achieved by changing the height of the bridge. When the bridge is made higher the action will be higher and when the bridge is lower the action will be closer to the frets. If you adjust your bridge a lot then you might change the intonation of the guitar. Setting guitar intonation would then be an important adjustment to make. However, small adjustments to action shouldn't make much difference to intonation anyway. Acoustic guitars tend to have higher actions than electric guitars. This is because the sound quality is affected by fret buzz a lot more. In the case of electric guitar set up a lot of the buzz gets lost in the amplification process and so actions can be a lot lower.
The method for dealing with the bridge height is different for acoustic and electric guitars. In acoustic guitars the bridge strip needs to be removed and then either sanded down if the action is high or shims put in the bridge groove if the action is too low. In the case of electric guitars you will, either be able to adjust each individual guitar string height or the top and bottom bridge height using the screw adjusters. Typically, Fender type guitars have individual bridge saddle screws and Gibson styles have bridges where the top and bottom can be adjusted. No matter which type of bridge it is you should always make changes a little at a time and then check to see if there is any improvement.
In the end action on guitars is all down to personal taste. Personally, I like to have electric guitar action slightly higher than most, as this makes the notes purer and the sustain greater.

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