Well I'm a beginner, and I bought a new guitar recently. As I was at the counter, the guy gave me a receipt and was like "keep this cause you can come back and have your guitar set up anytime between now and next year." So I was like alright, but I really didnt realize that I have no clue what he meant.
Mostly it means to have proper intonation and action. Some would also replace strings, oil and clean the fret board, as well as set up the tremolo, if you have one.
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Nice reply, dick face.

The first reply 100%.
A set up should at least be action and intonation.

It may also include: tremolo, pickup height, a full clean and truss rod adjustment. How much you get depends where you go and how much you pay, I know the last place I took my 7 string to only ran to action and intonation.
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There are a ton of adjustments that can be made to a guitar, most listed here. Making several of those adjustments, based on personal preference, is called 'setting up the guitar.' Its really just a generic term for making adjustments.
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Unless its electronic drums.

Yeah, the guys here have it. Since you're a beginner I'll explain the main things.

A set up is basically just adjusting all of the adjustable things on the guitar to get it to what the person doing the setup thinks is the optimum playing condition.

This will involve -

Action (the height of the strings above the fretboard) - adjust to some sort of happy balance between too low (lots of buzz) and too high (more difficult to play). Some guitarists like to have their action higher, but most will put it as low as they can get away with without getting lots of fret buzz.

Intonation - This is to do with tuning. Sometimes the guitar can be in tune on the open strings, but when you fret a note it will be out of tune. That happens because the length of string is just slightly wrong, which means that the frets are effectively in slightly wrong places. This can be fixed by moving the bridge saddles, subtly changing the length of the string and effectively moving it so that the frets are back in the right places under the string again.

Neck relief - There's a metal rod running down the neck, called a truss rod. This counteracts the tension of the strings and helps to stop the neck from deforming. But it can also be adjusted slightly to get the neck sitting in the perfect condition for playing - rather than perfectly straight, it's best if the neck is ever so slightly concave.

Tremolo stuff - There's a few things that can be adjusted on a tremolo, such as the spring tension in the back cavity to keep the tremolo level. This is vital on a Floyd Rose style floating unit. On a vintage style non-floating trem, it's mainly going to affect how hard you need to press the bar to get it to move.

Pickup height - How high the pickups are affects the sound that you get out of them. The closer they are to the strings, the higher the output. Normally, the neck pickup will be lower than the bridge because there's greater string movement above the neck pickup, thus naturally creating a stronger signal.

And usually, the setup will involve cleaning and restringing too.

Several of these things are easy for you to play around with yourself, but there are one or two that are potentially damaging to the guitar if you don't know what you're doing. Like turning the truss rod too far. If you try it yourself, one eighth of a turn at a time and leave it to settle. Don't go any faster than that!

It would be a good idea if you could watch a tech setting up your guitar to give you a feeling of how to do it all yourself.
Last edited by Confuse-a-Cat at Mar 19, 2012,
Generically, what does this service cost if you bring in an "outside" guitar to a store? Any advice on if any of the national chains do a good job?