Bicycle fit is an oft neglected area, specially among those new to Cycling. Since everyone's body size and type are different, it's impossible for a "one bike fits all" approach.
There are two important things to take care of :
To begin with, run thru' an online fit calculator, to get you started. This will help you decide on the bike frame size. Here's one : http://www.competitivecyclist.com/za/CCY?PAGE=FIT_CALCULATOR_INTRO , but there's lots more, so look around.
EDIT : Another Fit Calc here : http://www.jensonusa.com/help_desk/techlibrary/bikefit.asp
Once you have the bike, here are the basic adjustments which are a "Starting point" to dial in a good fit :
1. Saddle Height :
when pedal is at 6 o'clock position, and ball of your feet is on the pedal axis, your knees should be flexed at about 15-20 degrees. If you don't want to be bothered with the exact measurements yet, lets say a little flex of the knees in this position is required.
At the same position of the pedal, and heel of your foot on the pedal axis, your leg must be more or less stretched out (no flex/bend at the knees).
2. Saddle fore-aft :
When pedal is at 3 o'clock position, and ball of your feet is in line with pedal axis, then a plumb line dropped from bottom part of your knee (or just below the knee joint) should intersect the pedal axis. Adjust saddle fore-aft until you get this correct.
3. Saddle tilt :
Start with the most neutral position - perfectly horizontal with respect to the ground. To much of forward tilt, and you'll be sliding forwards all the time, and also end up with palm numbness or shoulder aches.
Too much of back tilt, and you'll have pain in the crotch area.
3. Stem length :
This is a bit tricky since it may require changing the stem and/or adjusting it's angle. With a road bike, a ball park figure is to get the stem length such that the handle bar horizontal axis is aligned with the axle of the front wheel - so the front wheel axle should be "hidden" by the handle bar.
EDIT : This applies mostly to Road Bikes. MTB and Hybrids require a different weight distribution, and hence, different Stem setting.
Stem length also affects fore-aft weight distribution. For a comfortable fit, it is necessary to have a balanced distribution. Too much weight towards the front, and you'll have pains/aches or even numbness in the palms.
When the stem length is just correct, your hands are a bit relaxed when riding on the hoods, and your body weight is more or less centrally distributed.
These are just a couple of tips to get you started down the right direction.
For more detailed information, Google it up, and you'll have tons of links.
Here are some that I've bookmarked :
here's a link of Bike riding posture
I'm not any kind of expert on this, so some of the more experienced folks can chip in with their comments and corrections.
:: UPDATE ::
and here is an excellent article by Vandit about Bike Fit for Beginners :
Really nice Anool.
Utility info for all riders. Have fine-tuned myself with that somewhat. Thanks for the guidance man.
As for me,
Had seen it on my recent BZ visits. Nice gyan.