I think it will help to understand what "rich" and "lean" are.

Rich means there is too much fuel in the fuel/air mixture, so there isn't enough Oxygen or time to burn it all. This means that there is unburnt fuel flowing all the way though the engine and out the exhaust. It sounds bad, but that extra fuel means extra lubrication and extra cooling in the engine, and makes for a longer life. But it also cools down combustion which reduces the power output.

Lean is not enough fuel. In this case, all the fuel burns, and frequently some of the oil as well. The engine runs hotter than it should, and gets less lubrication than it should. Engine parts heat up and expand, and in some engines (non-ABC) too much of this can cause serious damage. The lack of lubrication can hurt any engine. And, of course, the lack of fuel burning results in a loss of power.

The needle valve works by having a tapered needle that fits in a small hole. As you screw in the needle, the hole gets closed, reducing the flow of fuel in to the carb.

Ok, so how to tune an engine. Setting the needle is done with a combination of tests. First, the needle is usually backed out a little, richening the mixture a tad (half turn max, maybe less), and the engine is started. (if the weather hasn't changed much since the last run, I don't bother backing the needle, just start it up). If it's a new engine, see the manual for first starting position, it's usually on the rich side.

The engine should start and will usually have a deeper sound. It's common to see fuel coming out of the exhaust. If you put your hand behind the muffler and feel what's coming out, you should get some raw fuel on your hands, and the oil should be light colored, or nearly transparant. The engine might be 4-stroking, which is fireing every other stroke. Yes, they can, and do, do this.

The needle is then slowly turned inwards. I usually turn no more than 1/2 turn at a time when I know I'm way rich, then smaller and smaller adjustments as I get closer to "ideal", including a click at a time at the end. It's important to let the engine "catch up" with your changes. You can't just keep on screwing the needle in, you have to pause between adjustments.

As the need is turned inwards, you will hear the sound of the engine change. first, it breaks out of 4-stroking, though a "middle range" where it's going back and forth, and in to a "clean" 2-stroke where the pitch sounds constant and clear. At this point, you are getting close to peak. If your plane has a lot of power, you can fly at this point, just inside a clean 2-stroke. You'll still be plenty rich for long life, but be getting most of the engine's power potential.

Ok, so you want more power. As you continue to slowly lean the needle, the RPMS will go up slowly. You can hear the rpms going up, that's what guys are listing for. Then, as you keep leaning SLOWLY, a few cliks at a time, you'll reach a point where the RPM doesn't change, or drops slightly. If you keep leaning, the RPM keeps dropping off. At this point, you're too lean, so back out the needle to reach that peak RPM point.

Now, when the plane is flying, the prop "unloads" and the Gforces and drop of fuel level in the tank all combine to lean the engine a bit in flight. So you should never take off at this peak setting. Instead, back the needle just enough so the hear a slight RPM decrease. For most people's ears, that's about 500rpm. Changes smaller than 500 aren't usually detectable by ear, at least I can't hear them unless I'm really paying attention.

Ok, so you've backed off from peak, so you're ready to go? Well, here's a couple of tests you should do to double check. Pick up the airplane and hold it vertically. The engine is now pulling fuel uphill, and will lean out a little. You should hear a slight RPM increase. If you hear a decrease, you are too lean, so back off the needle a tad and repeat. If you don't hear a change at all, I'd still call it slightly lean, so back off a click or two. Another test is to give the fuel line a hard, but short pinch. Again, this breifly leans the engine. You should hear a slight RPM increase. If the engine slows or staggers, back it off a tad.

One the needle is set, you won't need to adjust it much. As the weather changes, you'll need to make small adjustments, but if you find yourself wanting to change the setting by more than maybe 1/2 turn either way, something else is likely wrong in your fuel system.

The exact RPM numbers and needle setting will vary with prop, air density, humidity, fuel, and some other factors. So if you change prop sizes or fuel brand (even at the same nitro, differnet fuels will produce different RPMS and needle settings), you'll want to reset the engine.

That's it. The key is running a bit off peak RPM at all times. On my student's planes, I set the needle quite a bit off peak, since they don't need the power on the trainers anyway. It's common to see a nice smoke trail behind the plane with an engine set rich.

If you want to, you can use a tach to set the engine, but the procedure is the same. Just slowly lean while watching the RPM. You have to let the engine and tach settle after each change. As you go too lean, you'll see the RPM drop, then I personally back off 500 to 1000rpm depending on what I'm doing.

Actual RPM ranges for 2-strokes vary quite a bit. But for most sport flying, the prop and fuel selected will normally put the engine in the 12-16k range for a .25-.60 class engine. On my combat engines, I sometimes peak around 20k, 4-strokes normally shouldn't be over 10-12k on the ground for most of them. Larger engines turn slower, smaller engines usually wind up faster.