So here's the deal. If you just accept the default settings in facebook, pretty much anyone can find out enough about you to either do some damage (if they are so inclined), or just get an idea of what you look like in some of your "cutest" (read most embarrassing) poses. Some of these settings hide in places that most of us don't look. Go to Account (top right) and choose Privacy Settings and you will see this page.
The top one, Connecting on Facebook, is where you control who can search for you, see your friend list, see your education and work, etc. The Applications and Websites is often overlooked, but very important. This is where you should customize what information is available to websites and applications that your friends use. What?!! you say. My FRIENDS applications can see information about me? Aha, now you're getting the picture. And this is where the often overlooked "public search" option is hidden. This means that anyone searching through Google, Yahoo, etc. can see your rants and raves, if you have not protected them through these settings.
The one in the middle, Customize Settings, is VERY important, as you go here to control who can see your contact info, your photos, and to enable or disable" Places I Check Into", and "People Here Now", a thing I like to call "Identity thieves one stop shopping":
I could go on and on (I guess I already have), but the bottom line is this. You should get into your account settings and privacy settings and click EVERYTHING.
Let's look at this possible scary scenario.
Some bad guy (or girl) decides he REALLY wants to be you, walk like you, talk like you, but most of all SHOP like you. He can go to Facebook, get a photo from your gallery (especially if you have portrait style ones) to make an ID card, find your mother's maiden name (if you have posted family info and made it accessible to everyone, or even friends of friends), your hometown, high school, place you work, any events you will attend,and if "Places I Check Into" is enabled, where you are at that very moment. The potential for damage is limitless.
Now, I use and enjoy Facebook, but I think of it this way:
Facebook is like a friend or business partner that is a lot of fun, takes me to cool places, but I would not leave alone with my sister. (Although my actual sister could handle him).