Unfortunately there's no such thing as Colour Management Made Simple; it's a topic where trying to understand the nuances can help. That said, there's some excellent articles in the Tech Corner at Steve's Digicams
. Look particularly at February 2005
for a start, then May 2005
if you use an Epson printer or June 2005
if you use a Canon printer. Other particular favourites are July 2005
on rendering intents and September 2005
on soft proofing - though I'd leave soft proofing for a while until you've assimilated the more basic stuff.
There are two sorts of profile; device independent, which are for mathematically defined abstract colour spaces, and device spaces, which characterise a real device such as a monitor or printer. Printer profiles are only valid for a particular printer / ink / paper / driver combination (though, in truth, changing driver versions doesn't usually affect things).
Files are best created and kept in device independent spaces with a few notable exceptions. The one that comes to mind is sending files to be printed by a bureau; often you have to apply the profile of the Frontier or similar device as these devices don't understand embedded profiles. You save the files without embedded profiles and send instructions to print without colour corrections. In essence, what you've done is used colour management on your machine to move the data to the device's own colour space, then told the operator to print your files with no further adjustment.
Some transformations are destructive - such as narrowing the bit depth (e.g. 16 bit to 8 bit) or changing the colour space of a file. If you have to do any of these, consider keeping a copy of the file before making these transformations, so that you can get back to where you were.
You hear a lot of talk about gamut - that's the range of colours that the profile can represent (if device independent) or the device can represent (if it's a device profile). One very important concept is that, by itself, colour management can't widen the gamut of an image; gamut is only lost via colour management. In other words, if your printer is capable of greens that are in Adobe RGB but are outside the sRGB gamut, you can only get those greens when printing an Adobe RGB file, because they can't exist in an sRGB file. It is possible to compare profiles by projecting gamut plots onto each other, but that can confuse rather than help. It depends on how your mind works.
The rendering intent determines what happens on transitioning from one colour space to another. For most photograhic purposes, you only need worry about relative colorimetric and perceptual. Absolute colorimetric has no place in a photographic workflow, whilst saturation is defined as being for items like business graphics, where you want bright saturated colours. However, some calibration solutions (I believe Printfix Pro is one example) use Saturation for their attempt to optimise photo printing.
In essence, relative colorimetric (which you should use with black point compensation on in almost every case) pins out of gamut colours in the destination colour space to the edge of the gamut. This gives good results if almost all your colours are in gamut in the destination colour space (as you can check using the Gamut Warning feature in Photoshop with the destination colour space selected in the proofing setup), but looks horrible if you have more than the merest hint of out of gamut colour, as you lose all tonality in the out of gamut areas.
Perceptual adopts a different approach; that compresses all the colours to avoid the 'out of gamut' effects of relative colorimetric. However, in doing so, it distorts your in gamut colours (by how much is not well defined at the moment). Perceptual is the safest choice for photographic work, but using relative colorimetric when appropriate can help.
Thinking of monitors as sRGB devices is rather out of date. sRGB is a reasonable approximation to an old CRT monitor. Modern LCD monitors, especially recent higher end models, have a significantly wider gamut than sRGB, including most or even all of Adobe RGB. You shouldn't set sRGB as the monitor profile for a modern monitor; if you have no colorimeter, use the manufacturer's canned profile plus Adobe Gamma or similar, though it's hard to get good results this way and a colorimeter is highly recommended.
sRGB remains the 'safe' option, not least for use on the web where very few browsers will use embedded profiles in images (at the moment, it's pretty much just Safari, though the upcoming Firefox 3 has colour management support on Windows and Mac OS X).
Modern digital SLRs used in RAW mode have particularly wide gamuts; there are colours that are in gamut even on older models that are outside the Adobe RGB gamut. This is why there's increased interest in using very wide gamut spaces such as ProPhoto RGB (which is used internally in Lightroom). These very wide gamut spaces must be used in 16 bit mode to avoid posterisation; in 8 bit mode, adjacent colours are just too far apart to represent smooth gradients. For that reason, if you want to turn a 16 bit file in a wider colour space into an 8 bit file in a narrower colour space, you convert it to the new profile then drop to 8 bit mode (and not the other way round!).
There are many potential pitfalls in using wider gamut spaces. As you've already figured out, you have colours in your file that can't be seen on your monitor. One way around this is to use screen profiles with gamut compression built in; essentially increases the degree of compression used for the perceptual transformation from the file to screen (screen profiles are invariably used with the perceptual rendering intent). Often an easier way is simply to be guarded if you make any radical transformations to the file; remember that there may be colours in your file that are out of gamut on your printer and your monitor.
The advantage of using wider gamut spaces is that you can preserve beautiful colours that you can print that are way outside narrower gamut spaces.
If you want some starting places, the most important thing is to get a good quality monitor and calibrate it with a good quality hardware colorimeter. Gamma 2.2 is standard for screen calibration, as is the use of D65 (or if you don't have D illuminants, 6500K). I'd take these as a starting place, except on a laptop screen where using the native colour point of the screen can produce better results. Laptop screens are almost invariably awful for colour critical work.
I would bring files into Photoshop from Camera Raw as 16 bit ProPhoto RGB. It's never got me into trouble; just be aware of the potential pitfalls. If you use a non-destructive workflow with adjustment layers, masks and the like, it can be possible to revisit the decision to use 16 bit ProPhoto later - especially if you're working in Photoshop CS3 with the RAW file as a Camera Raw Smart Object, and you're using Smart Filters, adjustment layers and masks only.
Remember that colour management can only ever reduce gamut by itself, not expand it. If you use even Adobe RGB at this stage, you are throwing away some colours that your camera can capture, though, to be fair, those losses may well not be significant. You can always delay the decision to throw away those colours, but once they're gone, they're gone. If you must use 8 bit, use at most Adobe RGB; as I explained earlier, ProPhoto RGB has such a distance between adjacent colours that you must use it in 16 bit mode.
Files for the web should be 8 bit sRGB - convert to sRGB first, then 8 bit. Don't lose the original file, as both transformations are destructive. In Photoshop you can use Image -> Duplicate (or the New button in the History palette) to avoid getting into a situation where pressing Save will overwrite your original.
For printing, use the best profiles you have for the printer / ink / paper / driver combination you're using. If possible, use the application to manage colour and tell the printer driver that's what you're doing. The main reason this isn't possible is when printing monochrome; in that case, you usually have to let the driver do the colour management.
The gamut warning feature in Photoshop can help you choose a rendering intent, and soft proofing can help you tweak the image, but neither are a complete replacement for printing a proof. You can always print a smaller version of an image and/or print just tricky areas at full size first when trying to optimise the settings.
Be aware that different papers have different gamuts and properties. Glossy paper has a wider gamut than matt. When printing with profiles, you should use the same driver settings as were used to create the profile, especially for paper type. If you don't know the correct settings for a third party profile, ask.
Be aware that the illumination you use to view a print changes your appreciation of the colours, also that prints and on-screen display can never match perfectly because - amongst other things - your screen is emissive and the print reflective.
I hope this quick trip through colour management helps. I'm only recommending starting points, and these are my decisions for my workflow.
Understanding what you're doing can help you make wise decisions. If you're originating content on your machine, think about what you want to finish up with. If you need 8 bit Adobe RGB JPEG files and you're making little or no adjustments on your computer, it may be best to set your camera to Adobe RGB and shoot JPEG. (That said, it may be best to shoot RAW + JPEG; it never hurts to restrict your options).