Putting it together
So, you are saying "I just want to know how to set the thing up!" OK then, here we go, this is how I go about it.
First you set your sag by using the preload adjusters (the one for the fork is the big hex on the fork top, the rear shock will have either a threaded ring or a ramped adjuster that control the spring tension) there is more detail on sag here, this is the first step because you are fitting a load into the chassis that the damping adjustments will have to deal with as well as it will set some of the chassis attitude.
Next I set the compression damping (the small slotted adjuster at the bottom of the fork and the slotted adjuster on the top side of the shock or on the shock reservoir) more on compression damping here, because in the next step I push down on the seat so I want it to go down at roughly the correct rate.
Next and possibly last, I set the rebound damping ( the slotted adjuster on the top of the fork and the bottom of the shock normally) by pushing down on the seat and watching the rate of return and to see if it goes past the starting point, then I do the same for the fork. More on rebound damping here.
If you change the bike geometry (here) you need to go through this procedure again because you will probably move some weight bias.
This just what I call the "parking lot setup", the next step is to ride the bike down the roads you will be riding. You may need to make compromises, ie: if you ride bumpy roads you may need to trade off light handling (steep trail/more compression and rebound damping) for a softer and more stable setup.Keep in mind that there is no single perfect setup, for instance, if rider A is smooth and is light and gradual with the brakes s/he will not need to have as stiff a front end setup as rider B who is rough with the throttle,brakes,gearshifting. Rider B needs a stiff front end to keep the fork from bottoming or using too much travel with control inputs and not leaving enough to deal with the forces required.Rider B might also need more rebound damping on the shock to keep the weight transfer fore and aft to a minimum. If rider A and rider B switched bikes, they would both be disgusted by the handling of the other's bike. Also, the riders weight and hieght (how that weight it distributed) makes a difference.
Anybody that says they can completely set up the bike while it is stationary doesn't know what they are talking about. For one thing: the weight of the wheels/tires/brake disks/swingarm/lower fork/any other unsprung mass is directly pushing on mother earth so it doesn't affect the suspension even a little bit when the bike is stationary, but it is the very stuff you need to account for when the bike is moving. Say you change your tires from something relatively heavy (say Michelin Pilots) to something fairly light (say Pirelli Dragon SuperCorsas) you may find that when changing directions through a tight chicane your tires now come off the ground and you even get hints of a tankslapper when going over bumpy stuff. You now have a bit too much rebound because your new light tire doesn't have enough enertia to bounce up and compress your spring hard enough that you need the same rebound as you did when that big heavy tire shot way up your travel and would come sailing back without that amount of rebound. The stationary setup only works well for getting in the ballpark, you still have to ride around the bases.
Some last bits that I keep in mind: Try to use the least damping as you can.Value stability over sharpness of steering.Make the bike comfortable.