This is a question that every serious tuner, engineer, racer asks. For every person you ask you'll get a slightly, sometimes very different answer.
Here is a quick idea of the issues.
Chassis geometry and suspension are two unique and distinct components of a motorcycles handling. In an ideal world, suspension wouldn't affect chassis geometry, nor the reverse. But that has always been the burning issue in bike design and set-up!
If everything would be smooth and flat, suspension would be undesirable, Thats why in F1, the smoothest tracks get the shortest travel suspension.
The rougher things get, the more travel you need to maintain a semblence of control
at high speeds.
We need to keep the wheels on the ground, the chassis in a stable state, and keep the bike comfortable, therefore controllable.
Unfortunately, when wheels go through their suspension travel, all the careful calculated chassis numbers (Rake, trail, C. of G. to name a few) change. THIS IS NOT GOOD.
Suspension setup also effects feedback to the rider.
I hope this helps explain the importance of suspension and technical problems it creates.
Set up your suspension? Here are a few important basic points.
First and very important step, set the sag!
To do this right, you need 2 assistants. The burly one holds the rear of the bike, balanced upright, with you in your normal riding position. You may need a few attempts to get comfortable, it takes a bit of tutoring to get the assistant to only keep you from tipping and at the balance point, so that he hardly needs to apply pressure on the bike at all. When he's got that point sussed, "assistant 2" measures from the fork wiper to the bottom triple-tree, then measures up from the rear axle to a grab rail bolt or something. Now get off, and fully extend the suspension and let "assistant 2" re-measure, using the exact same reference points. Now subtract the smaller numbers from the larger. This gives you you your sag! This number should be between 1/4 to 1/3 (25 to33%) of your total travel. This should be a one-shot-deal unless you or the bike gains or loses weight!
Now check that your tire pressures are correct and go riding! Fiddle with your damping
settings a couple of clicks at a time. A Couple of hints:
If you get a sharp jolt over lips/potholes, less compression damping.
Pogo ride/topping out, more rebound damping.
If a rapid succession of bumps makes things feel rougher/pumping down, less rebound.
If you are at the limits of adjustability in your quest for nirvana, use a heavier/lighter suspension fluid.
I hope this Helps out!