If you don’t setup the permalinks on your site, the url would just have a number to point to a certain article. The good news is that you can easily change the look of your urls to your liking. As a side effect your pages can get better ranking in the search engines, but be careful a permalink setup can have a negative effect on the loading of your WordPress site.

Using the category and or postname first will slow down the site, specially if you are an active writer planning to grow your site to hundreds of posts or have large articles with many images to load. The slow loading is due to the software distinguishing posts from pages. To learn more about it visit wordpress tutorial (http://codex.wordpress.org/Using_Permalinks)
Of course if you have a smaller site and don’t plan to grow it, then any permalink strategy would be fine.

Note: Each post has only one permalink, so if you tie your post to 2 categories and have designated %category% in your permalink, wordpress will assign only one category to your post. Keep this in mind when planning your new site.

There are 2 main steps to be used:

1- Setting up the .htaccess to allow the url

# BEGIN WordPress
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /index.php [L]
</IfModule>
# END WordPress

2- Picking up your favorite url style by choosing the variable of your choise.

Following are available choices that are self explanatory:
%year% for example: 2010
%monthnum% for example 05
%day% example 28
%hour%
%minute%
%second%
%postname%, as per wordpress tutorial: Starting your Permalink with %postname% is strongly not recommended for performance reasons..
%post_id%
%category% as per wordpress tutorial: Starting your Permalink with %category% is strongly not recommended for performance reasons.
%tag% as per wordpress tutorial: Starting your Permalink with %tag% is strongly not recommended for performance reasons.
%author%

You might have noticed, my blog’s url starts with %catagory%, which is not the most efficient way of setting up a permalink. I wasn’t aware of it back then when I started. Now it’s too late to make a change, since some of my posts already have back links and page rank. Since I don’t have the time to write more frequently, that’s fine for the time being.

Regards.