I won't attempt here to tell you in detail how to hang wallboard or to tape joints; there are a number of book-length publications out there that offer excellent advice and guidance. But there are a few basics that always bear repeating. I've also picked up a few tricks over the years from the pros.
Preparing the Surface. The wallboard must be firmly attached, nailed, or screwed to the studs, joists, and other wooden structural members. The edges, in particular, need to be supported.
Be sure all nail or screwheads are set below the surface of the wallboard. Large holes or openings should be patched before you begin. You can't expect joint compound to fill more than seams and nail dimples.
Tape must be applied to each of the seams, both on flat walls and in corners. I prefer the self-adhesive fiberglass mesh tape, though some professionals still insist that paper tape is better.
Narrow Knives First. Sequence is everything in finishing wallboard joints. Start with a narrow knife, say, four inches wide, and apply the first coat. Center the blade on the joint, and cover the taped seam with joint compound.
The purpose of the first coat isn't cosmetic, but structural: you're filling the gaps, not smoothing the surface. Don't worry about keeping it perfectly smooth, but do be sure that there are no high spots that stand proud of the surface of the wallboard.
The second coat of joint compound is applied in a thinner, broader band, using a broad knife, perhaps six inches across. The approach is the same, as you should center the blade on the seam, but this time you should take care to keep the surface as smooth as possible. It'll make the next pass (and the sanding thereafter) easier.
The third coat is the one that really counts. This one is applied with a wide taping knife (ten inches or so), and should be quite thin. If the first two coats were applied carefully and evenly, a third coat should do the job, though in some cases a touch-up with a fourth coat may save a lot of sanding time.
Sanding the Wall Smooth. Some professionals are so proficient with their taping knives that they can trowel their joints smooth: A few easy strokes, and the wall is done. For most people, however, there are bumps and beads and trowel marks that must be sanded off.
Buy drywall sandpaper to do the job. It resembles wire mesh screen, with an open weave that doesn't clog as easily as regular sandpaper. You can also buy specially made devices to which sandpaper is clamped. These sanders have a flat, trowel-like bottom and handles, so they can be used like sanding blocks. Broom-handle and swivel attachments are also available for sanding ceilings and wall surfaces beyond easy reach.
Take special care when sanding the feathered edge of the compound where the paper surface is exposed. The paper can very easily be abraded and torn, so keep your sanding there to a minimum.
Be sure you wear a mask when sanding drywall. The dust generated isn't toxic, but it's only sensible to avoiding inhaling the powdery residue.
Wet sandpaper and wet sponge sanders are available for drywall work. Wet sanding limits the amount of fine dust that gets into the air.
Other Options. There are also a range of new tools on the market for applying joint compound. One, called a bazooka, contains a reservoir of compound that feeds directly through the tool onto the joints being taped. Tools for applying tape (called banjos) are time-savers, especially in the hands of professionals. For one room, such machines probably aren't sensible investments. On the other hand, if you are planning to do the taping work in an entire house, consider buying the more sophisticated equipment.