First, warm up the engine for about 5-10 minutes. This gets the oil hot and seals the rings as they should be.
Now that everything's hot :-D (do'h!), remove the all the spark plugs. This will let the engine spin over faster, save the battery and starter, and give you more accurate numbers.
Now set the throttle wide open, either by wiring open the throttle lever on the carb or by the proverbial "brick" on the gas pedal. The throttle should be wide open so the engine can pull all the air it needs, but you don't want to be repeatedly pushing the pedal to WOT every time you test a cylinder as you'll pump the engine full of gasoline that way, which will wash down the rings and give you crappy numbers as well as no oil in the cylinders (not good!).
Now screw in the gauge and turn the engine over 3-5 revolutions, this should get you to the max compression on the gauge. The needle should go up a ton on the first couple revolutions, then top out with the last couple. Try to do the same number of revolutions for all the cylinders.
Record your findings and move around to all the other cylinders. If you're quick about it the engine should stay warm and the #'s will stay consitent unless there's a problem. Ideally, all the cylinders should be within about 10% of each other.