The default permalinks is ugly. It usually looks like this: http://yourdomain.com/?p=N where N is a number.

There are many reasons to use “pretty permalinks”. Below are the reasons why we should make use of “pretty permalinks”: -

Easier to remember

http://yourdomain.com/britney-spears-sob-story is definitely easier to remember than http://yourdomain.com/?p=283.

Love At First Sight (or Hate)

By just looking at the URL of your article, http://yourdomain.com/britney-spears-sob-story, users understand what the article is about and thus, will click (or will not click) on the link depending whether the person are interested in the story.

Increase Search Engine Visibility

Search Engine loves text more than anything. Having “keywords” on the URL is more beneficial than ever.

The most common usage of permalink structure is as follow: /%year%/%monthnum%/%day%/%postname%/ (i.e. http://yourdomain.com/2008/01/20/britney-spears-sob-story/)

However, there are many people who think that is way too deep for search engines to crawl as there are way too many levels, hence they cut it short to /%postname%/ (i.e. http://yourdomain.com/britney-spears-sob-story/)

By using the shortest permalinks, many thinks the permalinks usage is optimized. But this method usually will create problems for the owners sooner or later. By using just the %postname% the rewrite rules may make it impossible to access pages such as your stylesheet (which has a similar format) or the /wp-admin/ folder. Furthermore, the dates are essential especially if you plan to use calendars and archive system to archive your posts.

So, the best method would be: /%year%/%monthnum%/%postname%/ (i.e. http://yourdomain.com/2008/01/britney-spears-sob-story/) or /%year%_%monthnum%_%day%/%postname%/ (i.e. http://yourdomain.com/2008_01_20/britney-spears-sob-story/)

To understand more about Permalinks, read Using Permalinks at WordPress Codex.